Ch. 20 Aggregate Demand and Aggregate Supply Reflection

Ch. 20 Aggregate Demand and Aggregate Supply Reflection

            The model of aggregate-demand (AD) and aggregate-supply (AS) discussed in chapter 20 is what “most economists use to explain short-run fluctuations in economic activity around its long-run trend”. There are many factors that affect the short and long run shifts in both aggregate demand and supply. The AD curve slopes downward and is affected by changes in price levels, which then effect changes in consumption, investment, government purchases, and net exports. The AS curve is vertical in the long-run and shifts based on changes in labor, capital, and natural resources. In the short-run AS slopes upward and is shifts based on changes in expected price levels. In studying both short and long-run changes to AD and AS we can both learn from past recessions and depressions in the national economy and we can predict future ones. This overall model was created after the Great Depression in the 1930s by John Maynard Keynes. We can learn a lot from Keynes models and research about the Great Depression and hopefully apply these theories to avoid similar economic depressions in the future.

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