Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
Explaining short-run economic fluctuations

Transcribed Image Text:2
W
F2
VERTICAL AXIS
The aggregate
3
The horizontal axis of the aggregate demand and aggregate supply model measures the overall
E
80
F3
$
4
HORIZONTAL AXIS
R
F4
%
5
AS
G
F5
T
AD
curve shows the quantity of goods and services that firms produce and sell at each price level.
^
6
MacBook Air
F6
Y
&
7
F7
U
*
demand
8
supply
price level
quantity of output
DII
F8
1
X.
(
9
F9
O
)
O
F10
8
P
F11
+
=
F12
A
C
bongo
A
A-Z
delete

Transcribed Image Text:►
1. Explaining short-run economic fluctuations
Most economists believe that real economic variables and nominal economic variables behave independently of each other in the long run.
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
F2
In the short run, however, 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. You will identify some of
the missing labels in the questions that follow.
VERTICAL AXIS
3
80
F3
$
4
Q
F4
%
5
T
31
F5
AS
AD
variable, will cause the price level, a
6
MacBook Air
c
F6
V
&
7
F7
=
?
* 00
variable, to increase but will have
variable. The distinction between real variables
8
DII
FB
(
9
F9
O
)
O
7
F10
7
P
F11
+
=
F12
bange
"
A
A
O
A-Z
delete
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