The economics of money, banking, and financial markets

CHAPTER 22

Aggregate Demand and Supply Analysis 

515

Aggregate Demand .....................................................................................................................515

Following the Financial News  Aggregate Output, Unemployment, and Inflation  516

Deriving the Aggregate Demand Curve ............................................................................... 516

Factors That Shift the Aggregate Demand Curve ................................................................. 517

FYI  What Does Autonomous Mean?  518

Aggregate Supply ........................................................................................................................521

Long-Run Aggregate Supply Curve ..................................................................................... 521

Short-Run Aggregate Supply Curve .................................................................................... 521

Price Stickiness and the Short-Run Aggregate Supply Curve ............................................... 523

Shifts in Aggregate Supply Curves ..........................................................................................523

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  Contents in Detail

Shifts in the Long-Run Aggregate Supply Curve ................................................................. 523

Shifts in the Short-Run Aggregate Supply Curve ................................................................. 524

Equilibrium in Aggregate Demand and Supply Analysis..................................................527

Short-Run Equilibrium ....................................................................................................... 528

How the Short-Run Equilibrium Moves to the Long-Run Equilibrium over Time ............... 528

Self-Correcting Mechanism ................................................................................................. 531

Changes in Equilibrium: Aggregate Demand Shocks ........................................................531

APPLICATION

  The Volcker Disinflation, 1980–1986 ..............................................532

APPLICATION

  Negative Demand Shocks, 2001–2004 .............................................534

Changes in Equilibrium: Aggregate Supply (Price) Shocks ..............................................534

Temporary Supply Shocks .................................................................................................. 534

APPLICATION

  Negative Supply Shocks, 1973–1975 and 1978–1980 .....................537

Permanent Supply Shocks and Real Business Cycle Theory ................................................ 537

APPLICATION

 Positive Supply Shocks, 1995–1999 ..................................................540

Conclusions ....................................................................................................................... 541

APPLICATION

  Negative Supply and Demand Shocks and the 2007–2009  

Financial Crisis .................................................................................................542

AD/AS Analysis of Foreign Business Cycle Episodes ..........................................................542

APPLICATION

  The United Kingdom and the 2007–2009 Financial Crisis .............544

APPLICATION

  China and the 2007–2009 Financial Crisis ......................................545

Summary 546  •  Key Terms 547  •  Questions 547  •  Applied Problems 548  •   

Data Analysis Problems  548   •   Web Exercises  549   •   Web References  549