I. Describe how fluctuations in aggregate demand and aggregate supply cause short-run changes in the economy and the business cycle Flashcards Preview

L1 17 Aggregate Output, Prices, and Economic Growth > I. Describe how fluctuations in aggregate demand and aggregate supply cause short-run changes in the economy and the business cycle > Flashcards

Flashcards in I. Describe how fluctuations in aggregate demand and aggregate supply cause short-run changes in the economy and the business cycle Deck (2)
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1
Q

SR disequilibrium where P2>P1

A

Excess supply: (in macroeconomic equilibrium terms) The Q of real goods and services supplied exceeds the AggD for real goods and services; Recessionary gap; downward pressure on prices

Effect on businss: A buildup of inventories, a decrease in production and prices > decrease in Plevel which moves econ back to P1

2
Q

SR Disequilibrium where P1>P0

A

Excess demand for goods and services; inflationary gap; Business experiences unintended decreases in inventories, so they increase output and prices . As Plevel increases, econ moves toward LRAgg.D equilibrium.