1. SHORT-RUN ECONOMIC FLUCTUATIONS12
SHORT-RUN ECONOMIC FLUCTUATIONS

2. Aggregate Demand and Aggregate Supply33
Aggregate Demand and Aggregate Supply

3. Figure 1 A Look At Short-Run Economic Fluctuations
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4. Figure 1 A Look At Short-Run Economic Fluctuations
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5. Figure 1 A Look At Short-Run Economic Fluctuations
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6. Figure 2 Aggregate Demand and Aggregate Supply...
Price
Level
Aggregate
supply
Aggregate
demand
Equilibrium
output
price level
Quantity of
Output
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7. Figure 3 The Aggregate Demand Curve...
Price
Level
Aggregate
demand P Y
1. A decrease
in the price
level . . . Y2 P2
Quantity of
increases the quantity of
goods and services demanded.
Output
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8. Figure 4 The Long-Run Aggregate Supply Curve
Price
Level
Long-run
aggregate
supply P
1. A change
in the price
level . . . P2
does not affect
the quantity of goods
and services supplied
in the long run.
Natural rate
Quantity of
of output
Output
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9. Figure 5 Long-Run Growth and Inflation
and growth in the
money supply shifts
aggregate demand . . .
Long-run
aggregate
supply,
LRAS
1980 Y
1990
LRAS Y
2000
LRAS
Price
Aggregate
Demand, AD
2000
Level
1. In the long run,
technological
progress shifts
long-run aggregate
supply . . . AD
1990 P
2000
and
ongoing inflation. P
1990 P
1980 AD
1980 Y
1980
leading to growth
in output . . .
Quantity of
Output
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10. Figure 6 The Short-Run Aggregate Supply Curve
Price
Level
Short-run
aggregate
supply Y P
1. A decrease
in the price
level . . . Y2 P2
reduces the quantity
of goods and services
supplied in the short run.
Quantity of
Output
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11. Figure 7 The Long-Run Equilibrium
Price
Level
Long-run
aggregate
supply
Short-run
aggregate
supply
Aggregate
demand A
Equilibrium
price
Natural rate
of output
Quantity of
Output
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12. Figure 8 A Contraction in Aggregate Demand
causes output to fall in the short run . . .
Price
Level
Short-run aggregate
supply, AS
Long-run
aggregate
supply
Aggregate
demand, AD
AS2
AD2
but over
time, the short-run
aggregate supply
curve shifts . . . A P Y B P2 Y2
1. A decrease in
aggregate demand . . . C P3
and output returns
to its natural rate.
Quantity of
Output
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13. Figure 10 An Adverse Shift in Aggregate Supply
1. An adverse shift in the short-
run aggregate supply curve . . .
Price
Level
Long-run
Short-run
aggregate
supply, AS
AS2
aggregate
supply
Aggregate demand B Y2 P2 Y A P
and
the price
level to rise.
Quantity of
causes output to fall . . .
Output
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14. Figure 11 Accommodating an Adverse Shift in Aggregate Supply
1. When short-run aggregate
supply falls . . .
Price
Level
Long-run
Short-run
aggregate
supply, AS
AS2
aggregate
AD2
supply C P3
policymakers can
accommodate the shift
by expanding aggregate
demand . . .
which
causes the
price level
to rise
further . . . P2 A P
but keeps output
at its natural rate.
Aggregate demand, AD
Natural rate
Quantity of
of output
Output
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