Appendix 4.1: Macroeconomics before Keynes: The Classical School

Upon completion of this chapter you should
understand how an aggregate-supply/aggregate-demand diagram can be used to portray business cycle behavior;
be able to analyze a supply-side shock; and
be familiar with ''supply-side economics."

5.1
The Aggregate Supply Curve
The supply side in the Keynesian analysis introduced in the preceding chapter can be represented by an aggregate supply curve with three distinct zones, as illustrated by AS in figure 5.1. This curve shows how the quantity of output from firms increases as the overall price level increases.
0078-001.gif
Figure 5.1
The AS/AD Diagram
An increase in government spending shifts AD 
to AD', moving the economy from A to B.

 



Macroeconomic Essentials. Understanding Economics in the News 2000
Macroeconomic Essentials - 2nd Edition: Understanding Economics in the News
ISBN: 0262611503
EAN: 2147483647
Year: 2004
Pages: 152

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