2. Explaining short-run economic fluctuations A majority of economists believe that in the long run, real economic variables and nominal economic variables behave independently of one another. For example, an increase in the money supply, a no long-run effect on the quantity of goods and services the economy can produce, a and nominal variables is known as variable, will cause the price level, a variable, to increase but will have variable. The distinction between real variables However, in the short run, most economists believe that real and nominal variables are intertwined. Economists use the model of aggregate demand and aggregate supply to examine the economy's short-run fluctuations around the long-run output level. The following graph shows an incomplete short-run aggregate demand (AD) and aggregate supply (AS) diagram-it needs appropriate labels for the axes and curves. In the questions that follow you will identify some of the missing labels. ?

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
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Chapter1: Making Economics Decisions
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VERTICAL AXIS
The aggregate
HORIZONTAL AXIS
AS
AD
curve shows the quantity of goods and services that firms produce and sell at each price level.
The horizontal axis of the aggregate demand and aggregate supply model measures the overall
Transcribed Image Text:VERTICAL AXIS The aggregate HORIZONTAL AXIS AS AD curve shows the quantity of goods and services that firms produce and sell at each price level. The horizontal axis of the aggregate demand and aggregate supply model measures the overall
2. Explaining short-run economic fluctuations
A majority of economists believe that in the long run, real economic variables and nominal economic variables behave independently of one another.
For example, an increase in the money supply, a
no long-run effect on the quantity of goods and services the economy can produce, a
and nominal variables is known as
variable, will cause the price level, a
AL AXIS
However, in the short run, most economists believe that real and nominal variables are intertwined. Economists use the model of aggregate demand
and aggregate supply to examine the economy's short-run fluctuations around the long-run output level. The following graph shows an incomplete
short-run aggregate demand (AD) and aggregate supply (AS) diagram-it needs appropriate labels for the axes and curves. In the questions that
follow you will identify some of the missing labels.
AS
variable, to increase but will have
variable. The distinction between real variables
?
Transcribed Image Text:2. Explaining short-run economic fluctuations A majority of economists believe that in the long run, real economic variables and nominal economic variables behave independently of one another. For example, an increase in the money supply, a no long-run effect on the quantity of goods and services the economy can produce, a and nominal variables is known as variable, will cause the price level, a AL AXIS However, in the short run, most economists believe that real and nominal variables are intertwined. Economists use the model of aggregate demand and aggregate supply to examine the economy's short-run fluctuations around the long-run output level. The following graph shows an incomplete short-run aggregate demand (AD) and aggregate supply (AS) diagram-it needs appropriate labels for the axes and curves. In the questions that follow you will identify some of the missing labels. AS variable, to increase but will have variable. The distinction between real variables ?
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