Quantity of Real GDP Supplied

Aggregate Supply

Long-Run Aggregate Supply

Short-Run Aggregate Supply

Short-Run Aggregate Supply (SRAS)

Long-Run Aggregate Supply (LRAS)

In the long run, real GDP ______ potential GDP

Why does aggregate supply equal potential GDP in the long run?

When potential GDP increases, both the LRAS and the SRAS curves shift _______

If the full-employment quantity of labour changes, the quantity of capital (physical or human) changes, or technology advances, the LRAS and SRAS curves shift ________

if there is a rise in the wage rate, the LRAS and SRAS curves shift ________

Quantity of real GDP demanded (Y)

Aggregate demand curve (AD)

The AD curve slopes downward for two main reasons

Wealth Effect

Intertemporal substitution effect

International substitution effect

Aggregate Demand Curve

The main influences on aggregate demand are

Expectations

Fiscal Policy

Monetary Policy

Fiscal Policy and Monetary Policy

The World Economy

An increase in Aggregate Demand shifts the curve _____

Aggregate Demand Increases If

An decrease in Aggregate Demand shifts the curve _____

Aggregate Demand Decreases If

Short-Run Macroeconomic Equilibrium

If real GDP is below equilibrium GDP, firms ______ production and _____ prices

If real GDP is above equilibrium GDP, firms ______ production and _______ prices

In short-run equilibrium, real GDP can be ______ potential GDP

Long-Run Macroeconomic Equilibrium

Long-run equilibrium occurs at the _____ of the AD, SRAS, and LRAS curves

If the quantity of labour grows, capital is accumulated, or technology advances, potential GDP increases. The LRAS curve shifts ______. GDP ______ and prices ______

Inflation in the Long-Run

The Business Cycle in the AS-AD Model

Below Full-Employment Equilibrium

Above Full-Employment Equilibrium

Full-Employment Equilibrium

Recessionary Gap

Inflationary Gap

An increase in aggregate demand shifts the aggregate demand curve ______

An increase in investment shifts the AE curve ______ and shifts the AD curve _____

When the price level rises, the AE curve shifts ______

At the short-run equilibrium, there is an __________ gap

In the long run, the multiplier is ______

A rise in the price level causes the SRAS curve to shift ______. Real GDP ______ and the price level ______ . This is called _______

3 Macroeconomic Schools of Thought

The Classical View

The Keynesian View

The Monetarist View