TAILIEUCHUNG - Lecture Principles of economics - Chapter 12: Aggregate demand and aggregate supply

This chapter introduces the model’s two key pieces—the aggregate-demand curve and the aggregatesupply curve. After getting a sense of the overall structure of the model in this chapter, we examine the pieces of the model in more detail in the next two chapters. | 12 SHORT-RUN ECONOMIC FLUCTUATIONS 33 Aggregate Demand and Aggregate Supply Short-Run Economic Fluctuations Economic activity fluctuates from year to year. In most years production of goods and services rises. On average over the past 50 years, production in the . economy has grown by about 3 percent per year. In some years normal growth does not occur, causing a recession. Short-Run Economic Fluctuations A recession is a period of declining real incomes, and rising unemployment. A depression is a severe recession. THREE KEY FACTS ABOUT ECONOMIC FLUCTUATIONS Economic fluctuations are irregular and unpredictable. Fluctuations in the economy are often called the business cycle. Most macroeconomic variables fluctuate together. As output falls, unemployment rises. Figure 1 A Look At Short-Run Economic Fluctuations Billions of 1996 Dollars Real GDP (a) Real GDP $10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1965 1970 1975 1980 1985 1990 1995 2000 Copyright © 2004 South-Western

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