Download The AD Curve

Aggregate Demand,
Aggregate Supply, and
Modern Macroeconomics
Chapter 9
Macro233 - JAFGAC
Laugher Curve
We adults do have something in common
with today’s teenagers.
They listen to rock groups and we listen to
economists.
None of us understands a word they’re
saying.
Jean Stapleton
Macro233 - JAFGAC
Introduction
Markets unleash individual initiative,
increase supply, and bring about growth.
 But markets can create recessions too.

Macro233 - JAFGAC
Introduction

Macro intervention tools – monetary and
fiscal policy – are tools governments use
on the aggregate demand side of the
economy.
Macro233 - JAFGAC
The Historical Development of
Modern Macroeconomics

The Great Depression of the 1930s led to
the development of macroeconomics and
aggregate demand tools to deal with
recessions.
Macro233 - JAFGAC
The Historical Development of
Modern Macroeconomics
During the Depression, output fell by 30
percent and unemployment rose to 25
percent.
 People decided that if the market wasn’t
creating jobs for them, the market must be
at fault.

Macro233 - JAFGAC
From Classical to Keynesian
Economics
Pre-Depression economists are called
Classical economists.
 They focused on long-run issues such as
growth.

Macro233 - JAFGAC
From Classical to Keynesian
Economics
Depression-era economists are called
Keynesians after economist John Maynard
Keynes.
 They began to focus on short-run
economic issues.

Macro233 - JAFGAC
From Classical to Keynesian
Economics

Keynes is the founder of modern
macroeconomics and the author of The
General Theory of Employment, Interest
and Money.
Macro233 - JAFGAC
Classical Economics
The Classical economists' approach was
laissez-faire (leave the market alone).
 They felt the market was self-adjusting,
 They concentrated on the long-run and
largely ignored the short-run.

Macro233 - JAFGAC
Classical Economics
They used microeconomic supply and
demand arguments to explain the Great
Depression.
 Their solution to the high unemployment
was to eliminate labor unions and
government policies that kept wages too
high.

Macro233 - JAFGAC
The Layperson's Explanation
for Unemployment
Laypeople believed that the depression
was caused by an oversupply of goods that
glutted the market.
 They wanted the government to hire the
unemployed even if the work was not
needed.

Macro233 - JAFGAC
The Layperson's Explanation
for Unemployment
Classical economists opposed deficit
spending, arguing that the money to create
jobs had to be borrowed.
 This money would have financed private
economic activity and jobs, so everything
would cancel out.

Macro233 - JAFGAC
The Essence of Keynesian
Economics
Keynes concentrated on the short run
rather than the long run.
 He said: “In the long run we are all dead."
 By changing this approach, he created the
macroeconomic framework that focuses on
stabilization policy.

Macro233 - JAFGAC
The Essence of Keynesian
Economics

Keynes thought that the economy could
get stuck in a rut as wages and price level
adjusted to sudden changes in
expenditures.
Macro233 - JAFGAC
The Essence of Keynesian
Economics
According to Keynes:
a decrease in investment demand 
job layoffs  fall in consumer demand 
firms decrease production 
more job layoffs 
further fall in consumer demand, and so forth

Macro233 - JAFGAC
The Essence of Keynesian
Economics
Keynes argued that, in times of recession,
spending is a public good that benefits
everyone.
 Aggregate demand management –
government’s attempt to control the
aggregate level of spending in the
economy.

Macro233 - JAFGAC
Equilibrium Income Fluctuates
Income is not fixed at the economy's longrun potential income – it fluctuates.
 For Keynes there was a difference
between equilibrium income and potential
income.

Macro233 - JAFGAC
Equilibrium Income Fluctuates

Equilibrium income – the level toward
which the economy gravitates in the short
run because of the cumulative cycles of
declining or increasing production.
Macro233 - JAFGAC
Equilibrium Income Fluctuates

Potential income – the level of income
that the economy technically is capable of
producing without generating accelerating
inflation.
Macro233 - JAFGAC
Equilibrium Income Fluctuates
Keynes felt that at certain times the
economy needed help to reach its potential
income.
 He believed that market forces would not
work fast enough and not be strong
enough to get the economy out of a
recession

Macro233 - JAFGAC
The Paradox of Thrift

If a large number of people in the economy
suddenly decided to save more and
consume less, total spending would fall
and unemployment would rise.
Macro233 - JAFGAC
The Paradox of Thrift
Incomes would fall as people lost their jobs
causing both consumption and saving to
fall as well.
 The economy would reach a new
equilibrium which could be at an almost
permanent recession.

Macro233 - JAFGAC
The Paradox of Thrift
This paradox of thrift is important to the
Keynesian story.
 Paradox of thrift – an increase in savings
can lead to a decrease in expenditures,
decreasing output and causing a
recession.

Macro233 - JAFGAC
The AS/AD Model

The AS/AD model consists of three curves:
The short-run aggregate supply curve.
 The aggregate demand curve.
 The long-run aggregate supply curve.

Macro233 - JAFGAC
The AS/AD Model

The AS/AD model is fundamentally
different from the microeconomic
supply/demand model.
Macro233 - JAFGAC
The AS/AD Model

Microeconomic supply/demand curves
concern the price and quantity of a single
good.
Price is measured on the vertical axis and
quantity is measured on the horizontal axis.
 The shapes are based on the concepts of
substitution and opportunity cost.

Macro233 - JAFGAC
The AS/AD Model

In the AS/AD model the price of everything
is on the vertical axis and aggregate output
is on the horizontal axis.
Macro233 - JAFGAC
The AS/AD Model

The AS/AD model is an historical model
that starts at a point in time and says what
will happen when changes affect the
economy.
Macro233 - JAFGAC
The Aggregate Demand Curve
The aggregate demand (AD) curve
shows how a change in the price level
changes aggregate expenditures on all
goods and services in an economy.
 It shows the level of expenditures that
would take place at every price level in the
economy.

Macro233 - JAFGAC
The Slope of the AD Curve
The AD is a downward sloping curve.
 Aggregate demand is composed of the
sum of aggregate expenditures.

Expenditures = C + I + G +(X - M)
Macro233 - JAFGAC
The Slope of the AD Curve

The slope of the AD curve is determined by
the wealth effect, the interest rate effect,
the international effect, and the multiplier
effect.
Macro233 - JAFGAC
The Wealth Effect
Wealth effect – a fall in the price level will
make the holders of money and other
financial assets richer, so they buy more.
 Most economists accept the logic of the
wealth effect, however, they do not see the
effect as strong.

Macro233 - JAFGAC
The Interest Rate Effect

Interest rate effect – the effect a lower
price level has on investment expenditures
through the effect that a change in the
price level has on interest rates.
Macro233 - JAFGAC
The Interest Rate Effect

The interest rate effect works as follows:
a decrease in the price level 
increase of real cash 
banks have more money to lend 
interest rates fall 
investment expenditures increase
Macro233 - JAFGAC
The International Effect

International effect – as the price level
falls (assuming exchange rates do not
change), net exports will rise.
Macro233 - JAFGAC
The International Effect

The international effect works as follows:
a decrease in the price level in the U.S.
the fall in price of U.S. goods relative to
foreign goods 
U.S. goods become more competitive
internationally 
U.S. exports rise and U.S. imports fall
Macro233 - JAFGAC
The Multiplier Effect
Initial changes in expenditures set in
motion a process in the economy that
amplifies the initial effects.
 Multiplier effect – the amplification of
initial changes in expenditures.

Macro233 - JAFGAC
The Multiplier Effect

The multiplier effect works as follows:
an increase in the price level in the U.S.
U.S. exports fall and U.S. imports rise 
U.S. firms lose sales and cut output 
U.S. incomes fall 
U.S. households buy less 
U.S. firms cut back again  and so on
Macro233 - JAFGAC
The Multiplier Effect

The multiplier effect amplifies the initial
wealth, interest rate, and international
effects, making the AD curve flatter than it
would have been.
Macro233 - JAFGAC
The AD Curve
Price
level
Wealth, interest rate, and
international effects
P0
Multiplier effect
P1
Aggregate
demand
Y0 Y1
Macro233 - JAFGAC
Ye
Real output
How Steep Is the AD Curve
Most economists agree that small changes
in the price level result in relatively small
changes in expenditures.
 This gives the AD curve a very steep
slope.

Macro233 - JAFGAC
Shifts in the AD Curve

Except for a change in the price level,
anything that changes aggregate
expenditures shifts the AD curve.
Macro233 - JAFGAC
Shifts in the AD Curve

The main shift factors of aggregate
demand are:
Foreign income.
 Expectations about future output or prices.
 Exchange rate fluctuations.
 The distribution of income.
 Government policies.

Macro233 - JAFGAC
Foreign Income
When U.S. trading partners go into a
recession, the demand for U.S. goods
(exports) will fall.
 The U.S. AD curve shifts to the left.

Macro233 - JAFGAC
Foreign Income

A rise in foreign income leads to an
increase in U.S. exports and a rightward
shift of the U.S. AD curve.
Macro233 - JAFGAC
Exchange Rates

When a currency loses value relative to
other currencies:
Export goods produced in that country
become less expensive.
 Imports into that country become more
expensive.

Macro233 - JAFGAC
Exchange Rates
Foreign demand for its goods increases.
 Its demand for foreign goods decreases.
 The AD curve will shift to the right.
 When a currency gains value, the AD
curve shifts to the left.

Macro233 - JAFGAC
Expectations About Future
Output
If businesses expect demand to be high in
the future, they will want to increase their
capacity to produce.
 The demand for investment will increase.
 The AD curve will shift to the right.

Macro233 - JAFGAC
Expectations About Future
Output
When consumers expect the economy to
do well in the future, they will spend more
now.
 The AD curve shifts to the right.

Macro233 - JAFGAC
Expectations of Future Prices
It pays to buy now if you expect prices to
rise in the future.
 The AD curve will shift to the right.
 The is most acutely felt in a hyperinflation.

Macro233 - JAFGAC
Distribution of Income
Wage earners tend to spend a greater
percentage of their income than earners of
profit income.
 It is likely that AD will shift to the right if the
distribution of income moves from earners
of profit to wage earners.

Macro233 - JAFGAC
Monetary and Fiscal Policy
Macro policy makers think they can control
the AD curve to some extent.
 If the federal government spends lots of
money, AD shifts to the right.
 If it raises taxes, household incomes will
fall, they will spend less, AD shifts to the
left.

Macro233 - JAFGAC
Monetary and Fiscal Policy
When the Federal Reserve Bank expands
the money supply, it can often lower
interest rates.
 AD will shift to the right.

Macro233 - JAFGAC
Monetary and Fiscal Policy

Macro policy – deliberate shifting of the
AD curve.
Expansionary macro policy shifts the curve to
the right.
 Contractionary macro policy shifts it to the
left.

Macro233 - JAFGAC
Multiplier Effects of Shift
Factors

Because of the multiplier effect, a change
in a shift factor of the AD curve moves the
curve by more than the initial shift.
Macro233 - JAFGAC
Effect of a Shift Factor on the
AD Curve
Price
level
Initial effect
100
200
Multiplier
effect
P0
Change in total
expenditures
AD0
300
AD1
Initial effect
Real output
Macro233 - JAFGAC
Effect of a Shift Factor on the
AD Curve
Initial
effect
Price level
P0
Multiplier effect
100
200
AD0
Change in total expenditures = 300
AD1
Real output
Macro233 - JAFGAC
The Short-Run Aggregate
Supply Curve

The short-run aggregate supply (SAS)
curve specifies how a shift in the
aggregate demand curve affects the price
level and real output in the short run, other
things constant.
Macro233 - JAFGAC
Price level
The Short-Run Aggregate
Supply Curve
SAS
Real output
Macro233 - JAFGAC
The Slope of the SAS Curve
The SAS curve is upward-sloping.
 The SAS curve reflects two different types
of microeconomic markets in our economy.

Auction markets – markets represented by the
supply/demand model.
 Posted-price markets – prices are set by the
producers and change only infrequently.

Macro233 - JAFGAC
The Slope of the SAS Curve
Posted-price markets are often called
quantity-adjusting markets.
 Quantity-adjusting markets – markets in
which firms respond to changes in demand
primarily by modifying their output instead
of changing their prices.

Macro233 - JAFGAC
The Slope of the SAS Curve

Prices change in quantity-adjusting
markets for two reasons.
Markups in posted-price markets are not
totally fixed.
 Because raw materials are often sold in
auction markets, a change in AD will change
input prices.

Macro233 - JAFGAC
Shifts in the SAS Curve

The AS curve shifts when a shift factor
changes – other things are not constant:
Changes in input prices.
 Changes in expectations of inflation.
 Productivity.
 Excise and sales taxes.
 Import prices.

Macro233 - JAFGAC
Changes in Input Prices
When input prices are raised, the curve
shifts up.
 When input prices are lowered, the curve
shifts down.

Macro233 - JAFGAC
Changes in Expectations of
Inflation
Expectations of inflation is a shift factor
that works through wages.
 If workers expect 2 percent inflation, they
will push for a wage increase of at least 2
percent.

Macro233 - JAFGAC
Changes in Factor Productivity
An increase in productivity reduces the
cost of production and shifts the AS curve
down.
 A decrease in productivity shifts the curve
up.

Macro233 - JAFGAC
Changes in Import Prices
Import prices are a component of an
economy’s price level.
 The SAS curve shifts up when import
prices rise.
 It shifts down when import prices fall.

Macro233 - JAFGAC
Changes in Excise and Sales
Taxes
Higher sales taxes shift the SAS curve up.
 Lower sales taxes shift the curve down.

Macro233 - JAFGAC
Input Prices and Labor
Productivity

Economists use a rule of thumb combining
the wage component of input prices and
labor productivity.
% change in the price level =
% change in wages – % change in
productivity
Macro233 - JAFGAC
Price level
Shifts in the SAS Curve
SAS1
Input prices increase
SAS0
Real output
Macro233 - JAFGAC
The Long-Run Aggregate
Supply Curve

The long-run aggregate supply curve
shows the long-run relationship between
output and the price level.
Macro233 - JAFGAC
The Long-Run Aggregate
Supply Curve
The LAS is vertical.
 At potential output, a rise in the price level
means that all prices, including input prices
rise.

Macro233 - JAFGAC
Price level
The Long-Run Aggregate
Supply Curve
Long-run
aggregate supply
(LAS)
Real output
Macro233 - JAFGAC
A Range for Potential Output
and the LAS Curve
The position of the long-run aggregate
supply curve is determined by potential
output.
 Potential output – the amount of goods
and services an economy can produce
when both labor and capital are fully
employed.

Macro233 - JAFGAC
A Range for Potential Output
and the LAS Curve

Potential output is considered to be a
range of values.
Resources are likely to be underutilized at
points on the SAS to the left of the LAS.
 Factor prices would likely fall and the SAS
curve would shift down.

Macro233 - JAFGAC
A Range for Potential Output
and the LAS Curve

Potential output is considered to be a
range of values.
Resources are likely to be overutilized at
points on the SAS to the right of the LAS.
 Factor prices would likely rise and the SAS
curve would shift up.

Macro233 - JAFGAC
A Range for Potential Output
and the LAS Curve
Real output
LAS
A
Underutilized
resources
Low-level
potential
output
Macro233 - JAFGAC
C
B
SAS
Overutilized
resources
High-level Real output
potential
output
Shifts in the LAS Curve

The LAS curve will shift whenever there is
a changes in:
Capital.
 Available resources.
 Growth-compatible institutions.
 Technological development.
 Entrepreneurship.

Macro233 - JAFGAC
Equilibrium in the Aggregate
Economy

Changes in the SAS, AD, and LAS curves
affect short-run and long-run equilibrium.
Macro233 - JAFGAC
Short-Run Equilibrium

Short-run equilibrium is where the AS and
AD curves intersect.
Macro233 - JAFGAC
Short-Run Equilibrium
Increases (decreases) in aggregate
demand lead to higher (lower) real output
and higher (lower) price level.
 Upward (downward) shift the SAS curve
lead to lower (higher) real output and
higher (lower) price level.

Macro233 - JAFGAC
Price level
Short-Run Equilibrium:
Shift in Aggregate Demand
SAS
P1
P0
E
F
AD1
AD0
Y0
Macro233 - JAFGAC
Y1
Real output
Price level
Short-Run Equilibrium:
Shift in Aggregate Supply
P1
SAS1
G
SAS0
E
P0
AD
Y1
Macro233 - JAFGAC
Y0
Real output
Long-Run Equilibrium
Long-run equilibrium is where the AD and
long-run aggregate supply curves intersect.
 In the long run, output is fixed and the price
level is variable.

Macro233 - JAFGAC
Long-Run Equilibrium
Aggregate demand determines the price
level.
 Increases (decreases) in aggregate
demand lead to higher (lower) prices.

Macro233 - JAFGAC
Long-Run Equilibrium:
Shift in Aggregate Demand
Price
level
P1
P0
LAS
H
E
AD1
AD0
Y0
Macro233 - JAFGAC
Real output
Integrating the Short-Run and
Long-Run Frameworks

The economy is in both short-run and longrun equilibrium when all three curves
intersect in the same location.
Macro233 - JAFGAC
Integrating the Short-Run and
Long-Run Frameworks
The ideal situation is for aggregate
demand to grow at the same rate as
aggregate supply and potential output.
 Unemployment and growth are at their
target rates with no inflation.

Macro233 - JAFGAC
Long-Run Equilibrium
Price level
LAS
P0
E
SAS
AD
YP
Macro233 - JAFGAC
Real output
The Recessionary Gap

A recessionary gap is the amount by
which equilibrium output is below potential
output.
Macro233 - JAFGAC
The Recessionary Gap
If the economy remains at this level for a
long time, there would be an excess supply
of factors of production.
 Costs and wages would tend to fall.

Macro233 - JAFGAC
The Recessionary Gap

As factor prices fall, the SAS curve will
shift down to eliminate the recessionary
gap.
Macro233 - JAFGAC
The Recessionary Gap
Price level
LAS
P0
P1
A
B
SAS1
AD
Recessionary gap
Y1
Macro233 - JAFGAC
SAS0
YP
Real output
The Inflationary Gap
The inflationary gap occurs when the
economy is above potential that exists at
the current price level.
 Factor prices rise causing the SAS curve
to shift up.
 The price level rises, and the inflationary
gap is eliminated.

Macro233 - JAFGAC
The Inflationary Gap
Price level
LAS
D
P2
P0
SAS2
C
SAS0
AD
Inflationary gap
YP
(c)
Macro233 - JAFGAC
Y2
Real
output
The Economy Beyond Potential
When the economy operates below its
potential, firms can hire additional factors
of production without increasing production
costs.
 Once the economy reaches its potential
output, that is no longer possible.

Macro233 - JAFGAC
The Economy Beyond Potential
As firms compete for resources, costs rise
beyond productivity increases.
 The short-run AS curve shifts up and the
price level rises.

Macro233 - JAFGAC
The Economy Beyond Potential

The economy will slow down by itself or
the government will step in with a policy to
contract output and eliminate the
inflationary gap.
Macro233 - JAFGAC
Aggregate Demand Policy

Fiscal policy – the deliberate change in
either government spending or taxes to
stimulate or slow down the economy.
Macro233 - JAFGAC
Aggregate Demand Policy
Expansionary fiscal policy is appropriate if
aggregate income is too low.
 The deficit should be increased by
decreasing taxes or increasing government
spending.
 The AD curve shifts to the right.

Macro233 - JAFGAC
Aggregate Demand Policy
Contractionary fiscal policy is appropriate if
aggregate income is too high.
 The deficit should be decreased by
increasing taxes or decreasing government
spending.
 The AD curve shifts to the left.

Macro233 - JAFGAC
Expansionary Fiscal Policy
Price level
LAS
P1
P0
AS
Y0
Macro233 - JAFGAC
AD1
A
YP
AD0
Real output
Contractionary Fiscal Policy
Price level
LAS
B
P2
AS
AD0
AD2
YP
Macro233 - JAFGAC
Y2 Real output
Some Additional Policy
Examples
Unemployment is 12 percent and there is
no inflation.
 What policy would you recommend?
 Use expansionary fiscal policy to shift the
AD curve out to its potential income.

Macro233 - JAFGAC
Expansionary Fiscal Policy
Price
level
P1
P0
LAS
B
SAS
AD1
A
AD0
Y0
Macro233 - JAFGAC
YP
Real output
Some Additional Policy
Examples
Unemployment is at its target rate and it is
likely that consumer expenditures will rise.
 What policy would you recommend?
 Use contractionary fiscal policy to shift the
AD curve inward to counteract the
expected increase in AD.

Macro233 - JAFGAC
Contractionary Fiscal Policy
Price
level
LAS
B
P1
SAS
AD0
AD2
YP
Macro233 - JAFGAC
Y1
Real output
Some Additional Policy
Examples
What would have happened if the
government didn’t institute a contractionary
fiscal policy?
 There would be an inflationary gap which
would increase factor prices.
 The SAS curve would shift up until it
intersects the AD curve at YP.

Macro233 - JAFGAC
Economy Above Potential
Price
level
LAS
SAS1
E
P1
D
SAS0
P0
C
AD1
AD0
YP
Macro233 - JAFGAC
Y1
Real output
Fiscal Policy in World War II
The deficit increased greatly during World
War II.
 Real GDP grew by even more than the
increase in the deficit.
 Wartime wage and price controls
prevented the SAS curve from shifting up.

Macro233 - JAFGAC
Fiscal Policy in World War II

Although World War II expanded the
economy, that doesn’t mean wars are good
for the economy.
The production of military goods increased,
but the production of consumer goods
decreased.
 Many people were killed or permanently
disabled.

Macro233 - JAFGAC
War Finance: Expansionary
Fiscal Policy
Year
1937
1938
1939
1940
1941
1942
1943
1944
1945
1946
GDP
Deficit
(billions of
1958 dollars)
(billions of
Dollars)
$ 90
84
90
99
124
157
191
210
211
208
$ -2.8
-1.0
-2.9
-2.7
-4.8
-19.4
-53.8
-46.1
-45.0
-18.2
McGraw-Hill/Irwin
Unemployment
rate
14.3%
19.0
17.2
14.6
9.9
4.7
1.9
1.2
1.9
3.9
LAS
SAS
AD1
AD0
$90
$208
Real output (in billions of dollars)
© 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
U.S. Economic Expansion
The economy boomed during the late
1990s and early 2000s.
 The budget went from a large deficit to a
large surplus.

Macro233 - JAFGAC
U.S. Economic Expansion
Significant increases in consumer and
investment spending offset the
contractionary effect of the surplus.
 The surplus was more due to a booming
economy than due to contractionary policy.

Macro233 - JAFGAC
U.S. Economic Expansion
During 2000-2001, political pressures
increased government spending and cut
taxes which led to a shrinking surplus.
 The tax cut came just at the right time
because the economy moved into a
recession in mid-2001.

Macro233 - JAFGAC
Macro Policy Is More
Complicated Than It Looks

Using the AS/AD model to analyze the
economy is more complicated than it looks.
Implementing fiscal policy.
 Estimating potential output.
 Effectiveness of fiscal policy.

Macro233 - JAFGAC
The Problem of Implementing
Fiscal Policy

There is no guarantee that government will
do what the economy needs to be done.
Implementing government spending and tax
changes is a slow legislative process.
 Government spending and tax decisions are
made for political rather than for economic
reasons.

Macro233 - JAFGAC
The Problem of Estimating
Potential Output

Increasing AD when the economy is
operating at its potential will accelerate
inflation by shifting up the SAS curve.
Macro233 - JAFGAC
The Problem of Estimating
Potential Output
One way of estimating potential output is to
estimate the target rate of unemployment.
 Target rate of unemployment – the rate
below which inflation began to accelerate
in the past.

Macro233 - JAFGAC
The Problem of Estimating
Potential Output
Unfortunately, the target rate of
unemployment fluctuates and is difficult to
predict.
 For example, there is structural but no
cyclical unemployment at potential output
– it is difficult to differentiate between the
two.

Macro233 - JAFGAC
The Problem of Estimating
Potential Output
Another way to determine potential output
is to add the normal growth factor (3%) the
economy’s previous level.
 Estimating the economy’s potential from
past growth rates is complicated by
potentially dramatic changes in
regulations, technology, and expectations.

Macro233 - JAFGAC
The Questionable Effectiveness
of Fiscal Policy

The effectiveness of fiscal policy depends
on the government’s ability to perceive a
problem and react appropriately to it.
Macro233 - JAFGAC
The Questionable Effectiveness
of Fiscal Policy

Countercyclical fiscal policy – fiscal
policy in which the government offsets any
change in aggregate expenditures that
would create a business cycle.
Macro233 - JAFGAC
The Questionable Effectiveness
of Fiscal Policy
Most economists agree that the
government is unable to fine tune the
economy.
 Fine tuning – fiscal policy designed to
keep the economy always at its target or
potential level of income.

Macro233 - JAFGAC
Aggregate Demand,
Aggregate Supply, and
Modern Macroeconomics
End of Chapter 9
Macro233 - JAFGAC