TAILIEUCHUNG - Lecture Economics - Chapter 20: Aggregate demand and supply

In this chapter, you will learn to solve these economic puzzles: Why does the aggregate supply curve have three different segments? Was John Maynard Keynes’s prescription for the Great Depression right? Would the greenhouse effect cause inflation, unemployment, or both? | Chapter 20 Aggregate Demand and Supply Key Concepts Summary Practice Quiz Internet Exercises * In this chapter, you will learn to solve these economic puzzles: Why does the aggregate supply curve have three different segments? Would the greenhouse effect cause inflation, unemployment, or both? Was John Maynard Keynes’s prescription for the Great Depression right? * What is the Aggregate Demand Curve? The curve shows the level of real GDP purchased by households, businesses, government, and foreigners at different price levels during a time period, ceteris paribus * What does the Horizontal Axis measure? The value of final goods and services included in real GDP measured in base year dollars * What does the Vertical Axis measure? It is an index of the overall price level, such as the GDP deflator or the CPI * Why does the Aggregate Demand Curve slope downward to the right? Real balance wealth effect Interest rate effect Net exports effect * What is the Real Balance Effect? Consumers spend more on goods and services because lower prices make their dollars more valuable * What is the Interest Rate Effect? Assuming fixed credit, an increase in the price level translates through higher interest rates into a lower real GDP * What is the Net Exports Effect? A higher domestic price level makes . goods more expensive compared to foreign goods, exports decrease, imports increase, decreasing real GDP * $200 $150 $100 $50 2 4 6 8 B A 12 10 AD Price Level Real GDP The Aggregate Demand Curve * What can cause a shift in the Aggregate Demand Curve? Consumption, investments, government spending and net exports can change * 200 150 100 50 2 4 6 8 B A Real GDP 12 10 AD2 AD1 Price Level (CPI) A Shift in the Aggregate Demand Curve * What is the Aggregate Supply Curve? The curve that shows the level of real GDP produced at different price levels during a time period, ceteris paribus * Why did Keynes assume fixed product prices and

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