İKTİSADA GİRİŞ II

Aggregate demand is the total amount of goods and services demanded at various price levels by all sectors in an economy (households, firms, government, and external world). The total amount of these goods and services is measured by real income or real GDP.

Aggregate demand curve is the curve that shows the relationship between general price level and production level.

In obtaining the aggregate demand curve, we have assumed that the variables of the economic policy that the government use are fixed. Changes resulting from government expenditure (G), taxation (T) and money supply (MS) due to monetary and fiscal policy decisions cause the aggregate demand curve to shift.

There are different approaches among economists regarding the shape of the short-run aggregate supply curve, in other words, the slope of the short-run aggregate supply curve. Classical economists argue that the short-run supply curve is completely vertical or rather steep because the economy is always at full of employment as a result of dynamics of the market mechanism.

The cost changes that cause the displacement of the aggregate supply curve are called cost or supply shock.

When the prices are at a certain level, the central bank increases the money supply, causing the interest rate to fall in the money market. The decline in interest rates increases planned investment expenditures and therefore aggregate expenditures. The increase in money supply is the increase in production at a certain price level. In this case, the AD curve will shift to the right. Assume that the aggregate supply curve is constant, the aggregate demand curve shifs to the right from AD1 to AD2. In this case, the equilibrium shifts from point D1 to point D2. Eventually, the general price level in the economy increases from P1 to P2, while the equilibrium income level increases from Y1 to Y2.

Economic growth causes the aggregate supply curve to shift to the right.

According to the so-called divine coincidence in economics literature, output stability is provided automatically in an economy where price stability is provided.

if the economy is operating in a region where the aggregate supply curve is steeper, such as point B, an expansionary policy creates a small increase in production, while it causes a larger increase in the general price level.

The increase in the money supply plays an important role in the emergence of demand-pull inflation as well as the consistent inflation.

Aggregate demand curve is the curve that shows the relationship between general price level and production level.

The factors that determine the amount of money they want to keep are the interest rate (i), income (Y) and prices (P).

Change in money supply causes to AD curve to shift, other options are related with AS curve.

Aggregate supply curve the curve showing the relation between the total amount of production and prices offered by all firms in an economy

Aggregate expenditures in the economy are the sum of consumption (C), investment (I), government expenditure (G) and net exports (NX).

Change in wage level shifts the aggregate supply curve. Other factors are related with aggregate demand curve

Equilibrium price level is the price level at which the aggregate demand is equal to aggregate supply.

Stagflation is the situation in which prices increase while production decreases.

Decrease in taxes causes to aggregate demand curve leftward

Favorable weather conditions causes to AS curve to shift rightward.