As/Ad Model

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Macroeconomics – Chapter 10: The Aggregate Demand/Aggregate Supply Model * Keynesian Economics – Economists who focused on the short run * John Maynard Keynes - their leading advocate * the originator of macroeconomics as a separate discipline from micro * Classical Economists – economists who focused on long-run issues such as growth * Aggregate Demand Management – government’s attempt to control the aggregate level of spending in the economy * Equilibrium Income – the level of income toward which the economy gravitates in the short run because of the cumulative cycles of declining or increasing production * Potential Income – the level of income that the economy is technically capable of producing…show more content…
238 * When consumption expenditures increase, the AD curve shifts to the right, when consumption expenditures decrease, the AD curve shifts to the left

* Explain the shape of the short-run aggregate supply curve and what factors shift the curve – p.239 * Short-run Aggregate Supply (SAS) curve – a curve that specifies how a shift in the aggregate demand curve affects the price level and real output in the short run, other things constant * The curve is upward-sloping which means that other things constant, an increase in output is accompanied by an rise in price level * When aggregate demand increases, the price level rises * Two reasons that the SAS curve slopes upward, other things constant: * Upward-sloping curves in auction markets * Firms’ tendency to increase their markup when demand increases * The
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