Explaining short-run economic fluctuations 2WF2VERTICAL AXISThe aggregate3The horizontal axis of the aggregate demand and aggregate supply model measures the overallE80F3$4HORIZONTAL AXISRF4%5ASGF5TADcurve shows the quantity of goods and services that firms produce and sell at each price level.^6MacBook AirF6Y&7F7U*demand8supplyprice levelquantity of outputDIIF81X.(9F9O)OF108PF11+=F12ACbongoAA-Zdelete ►1. Explaining short-run economic fluctuationsMost 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, ano long-run effect on the quantity of goods and services the economy can produce, aand nominal variables is known asF2In the short run, however, most economists believe that real and nominal variables are intertwined. Economists use the model of aggregate demandand aggregate supply to examine the economy's short-run fluctuations around the long-run output level. The following graph shows an incompleteshort-run aggregate demand (AD) and aggregate supply (AS) diagram-it needs appropriate labels for the axes and curves. You will identify some ofthe missing labels in the questions that follow.VERTICAL AXIS380F3$4QF4%5T31F5ASADvariable, will cause the price level, a6MacBook AircF6V&7F7=?* 00variable, to increase but will havevariable. The distinction between real variables8DIIFB(9F9O)O7F107PF11+=F12bange"AAOA-Zdelete

Aggregate demand curve is a downward sloping curve indicating the negative relationship between…

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Economics

Explaining short-run economic fluctuations

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Explaining short-run economic fluctuations

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

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