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CHAPTER 17

AGGREGATE DEMAND ANDAGGREGATE SUPPLY

Ch. 17 / Aggregate Demand and Aggregate Supply 2

Figure 1: The Two-Way Relationship Between Output and the Price Level

Figure 1: The Two-Way Relationship Between Output and the Price Level

Ch. 17 / Aggregate Demand and Aggregate Supply 3

Figure 2: Deriving the Aggregate Demand CurveFigure 2: Deriving the Aggregate Demand Curve

Ch. 17 / Aggregate Demand and Aggregate Supply 4

Figure 3: A Spending Shock Shifts the AD CurveFigure 3: A Spending Shock Shifts the AD Curve

100

6 Real GDP($Trillions)

PriceLevel

AD1

J

8.5

AD2

N

Ch. 17 / Aggregate Demand and Aggregate Supply 5

Figure 4: The Aggregate Supply CurveFigure 4: The Aggregate Supply Curve

Ch. 17 / Aggregate Demand and Aggregate Supply 6

Figure 5: Shifts in the Aggregate Supply CurveFigure 5: Shifts in the Aggregate Supply Curve

PriceLevel

Real GDP($Trillions)

100

AS1

6

J

140

AS2

L

Ch. 17 / Aggregate Demand and Aggregate Supply 7

Figure 6: Short-Run Macroeconomic EquilibriumFigure 6: Short-Run Macroeconomic Equilibrium

Ch. 17 / Aggregate Demand and Aggregate Supply 8

Figure 7: The Effect of a Demand ShockFigure 7: The Effect of a Demand Shock

PriceLevel

Real GDP($Trillions)

100

6

E

AD1

AS

H

160

7.5 8.5

F

AD2

Ch. 17 / Aggregate Demand and Aggregate Supply 9

Figure 8: The Long-Run Adjustment ProcessFigure 8: The Long-Run Adjustment Process

PriceLevel

Real GDP

EP1

AS1

AD1

YFE

P4

AS3

K

JP3

AS2

Y3

AD2

Y2

HP2

Ch. 17 / Aggregate Demand and Aggregate Supply 10

Figure 9: Long-Run Adjustment after a Negative Demand Shock

Figure 9: Long-Run Adjustment after a Negative Demand Shock

YFE

PriceLevel

Real GDP

AS1

P1

AD1

E

P2N

AD2

Y2

P3

AS2

M

Ch. 17 / Aggregate Demand and Aggregate Supply 11

Figure 10: The Long-Run Aggregate Supply CurveFigure 10: The Long-Run Aggregate Supply Curve

PriceLevel

Real GDPYFE

E

AD2

K

AD1

Long-run AScurve

M

AD3

Ch. 17 / Aggregate Demand and Aggregate Supply 12

Figure 11: The Effect of Supply ShocksFigure 11: The Effect of Supply Shocks

PriceLevel

Real GDP

AD

EP1

AS1

YFE

AS2

P2

Y2

R

Y3

TP3

AS3

Ch. 17 / Aggregate Demand and Aggregate Supply 13

Figure 12: The Price of Oil, Real GDP, and the Price Level, 1990–1992

Figure 12: The Price of Oil, Real GDP, and the Price Level, 1990–1992

Ch. 17 / Aggregate Demand and Aggregate Supply 14

Figure 13: An AD–AS Analysis of the Oil Price ShockFigure 13: An AD–AS Analysis of the Oil Price Shock

PriceLevel

Real GDPYFE

AD1

EP1

AS1

T

P2

AS2

R

Y1