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Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383

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BuyFindarrow_forward

Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383
Textbook Problem

Economist Smith believes that changes in aggregate demand affect only the price level, and economist Jones believes that changes in aggregate demand affect only Real GDP. What do the AD and AS curves look like for each economist?

To determine

Shape of AD and AS curves for each economist.

Explanation

The aggregate demand is the summation of the individual demands in the economy, whereas the aggregate supply is the summation of all the individual supplies in the economy. When Smith believes that the change in the aggregate demand curve only affects the price level but not the real GDP, it means that the AS curve of the economy is fixed, which means that the AS curve of the economy is vertical...

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