Journaling of Chapter 33: Aggregate Demand and Aggregate Supply

Chapter 33 introduces aggregate demand and aggregate supply and shows how shifts in these curves can cause recessions. Chapter 33 also develops some of the actions that policymakers undertake to offset these recessions. This chapter focuses on the economy’s short-run fluctuations around its long-term trend. Three key facts about economic fluctuations are that economic fluctuations are irregular and unpredictable, most macroeconomic quantities fluctuate together, and as output falls, unemployment rises. In the short run, nominal and real variables are not independent. As a result, in the short run, changes in money can temporarily move real GDP away from its long-run trend. The aggregate demand curve shows the quantity of goods and services households, firms, the government, and customers abroad wish to buy at each price level. It slopes negatively. The aggregate supply curve shows the quantity of goods and services that firms produce and sell at each price level. It slopes positively (in the short run). There are two basic causes of a recession: a leftward shift in aggregate demand and a leftward shift in aggregate supply.  

Overall, I would give this chapter a difficulty rating of 2 out of 3. The class has already been introduced to demand and supply so that helps out a little bit. Since this chapter focuses on recessions for part of it, I would also like to know about booms in the aggregate demand and aggregate supply curve.