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Q: Economics ( No Answer,   2 Comments )
Question  
Subject: Economics
Category: Business and Money > Economics
Asked by: shooshoo-ga
List Price: $5.00
Posted: 30 Mar 2005 13:17 PST
Expires: 29 Apr 2005 14:17 PDT
Question ID: 502835
what happens to equilibrium if aggregate demand increases?
Answer  
There is no answer at this time.

Comments  
Subject: Re: Economics
From: ns2201-ga on 30 Mar 2005 13:32 PST
 
increases in aggregate demand leads to increases in real output or
instead to increases in prices (inflation).

http://www.answers.com/topic/aggregate-demand
Subject: Re: Economics
From: laskey-ga on 30 Mar 2005 14:20 PST
 
To clarify what ns2201 said, an increase in aggregate demand (a
rightward/upward shift of the negatively-sloped AD curve) will cause
BOTH the short-run real GDP (y) to rise (as shown on the x-axis) AND
the price level to rise.

This means that your new equilibrium point will have a higher price
level and a higher real GDP (it will be up and to the right from the
original equilibrium - wherever the newly-shifted AD curve intersects
the AS curve).

However, the increase to y only lasts in the short run - remember that
after any aggregate demand or supply shock (expansionary or
contractionary), the AS curve will slowly shift back until the
equilibrium real GDP is restored at the long-term real GDP (the y*
line).  As such, although both real output and price level are
affected in the short-term by an AD shock, in the long run, only price
level is affected.  Economicts refer to this as the 'long-run
neutrality of money'.  Good luck!

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