
Concept Introduction:
Aggregate
Short Run Aggregate Supply ( SRAS ): It is a positively slopped curve in which supply increases when price rises. The reason for upward slopping is that the wages are sticky in the short run due to formal or informal contracts. At high aggregate prices, there is a higher profit leading to a high level of output.
Money supply (MS ): It is the quantity of money present in the economy. It is controlled by the central bank of the country.
Money Demand ( MD ): It is the quantity of money demanded in the economy. It depends on the interest rate and the income of the person.
Fiscal policy: It includes government expenditure and taxes. When the government expenditure is increased or taxes are decreased then AD curve shifts rightward and vice versa. They are generally of two types:
- Expansionary Fiscal Policy: when the government increase expenditures or it reduces taxes, in both conditions, the consumption spending in the economy increases which leads to an increase in the aggregate demand level.
- Contractionary Fiscal Policy: when the government decrease expenditures or it raises taxes, in both conditions, the consumption spending in the economy decreases which leads to a decrease in the aggregate demand level.

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