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Short-run fluctuations in the economy

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Q: Most economists use the aggregate demand and aggregate supply model primarily to analyze?
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Why do most economists use the aggregate demand and aggregate supply model?

Because using aggregate demand and aggregate supply is a good way to see the big picture of the economy, which is most of the point of macroeconomics, and because they can be related to each other in meaningful, logical ways.


What is aggregate demand and what are the factors that affect aggregate demand?

nothing


What will happen when Aggregate demand and aggregate supply decrease?

When aggregate demand and aggregate supply both decrease, the result is no change to price. As price increases, aggregate demand decreases, and aggregate supply increases.


Which of these is centered on aggregate demand?

Fiscal policy is centered on aggregate demand.


In an aggregate demand-aggregate supply diagram what will equal decreases in government spending and taxes do?

No effect. Spending will decrease Aggregate Demand, lower taxes will raise Aggregate Demand


Why interest rate has no affect on the aggregate demand?

The interest rate does affect aggregate demand. As the interest rate falls, aggregate demand increases and vice-versa.


Fiscal and monetary policies are used to shift the aggregate supply curve or the aggregate demand curve?

Aggregate demand curve.


What is meant by aggregate demand and aggregate supply?

Aggregate simply means a collection of things. So aggregate demand is the total quantity of an economy's final good and services demanded at different price levels. Aggregate supply is the total quantity of final goods and services that firms in the economy want to sell at different price levels. These are used primarily in Macroeconomics to calculate how the economy is doing as a whole.


Using the AD-AS framework what is the impact on equilibrium price and output when there are increase in aggregate demand and aggregate supply simultaneously?

AD-AS represents aggregate demand curve (AD) and aggregate supply curve (AS). "In the aggregate demand-aggregate supply model, each point on the aggregate demand curve is an outcome of the IS-LM model for aggregate demand Y based on a particular price level. Starting from one point on the aggregate demand curve, at a particular price level and a quantity of aggregate demand implied by the IS-LM model for that price level, if one considers a higher potential price level, in the IS-LM model the real money supply M/P will be lower and hence the LM curve will be shifted higher, leading to lower aggregate demand; hence at the higher price level the level of aggregate demand is lower, so the aggregate demand curve is negatively sloped


How would a rise in business affect the aggregate demand curve?

The aggregate demand curve shifts to the right


The quantity of full employment in the aggregate supply aggregate demand model is similar to the conditions in which other model?

The quantity of full employment in the aggregate supply aggregate demand model is similar to the conditions in which other model. (Market Supply and Demand.)


What will happen if Aggregate demand increases and aggregate supply decreases?

An increase in aggregate demand and a decrease in aggregate supply will result in a shortage: there will be more goods and services demanded than that which is being produced.