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CHAPTER 19

A. KEY CONCEPTS OF MACROECONOMICS

B. AGGREGATE SUPPLY AND DEMAND

Macroeconomics

Study of the behavior of the entire economy:

Analyzes long-run growth and the cyclical movements.

Three central macroeconomic questions:

a. Why do output and employment sometimes fall, and how can unemployment be reduced?

b. What are the sources of price inflation, and how can it be kept under control?

c. How can a nation increase its rate of economic growth?

Economists

Evaluate the success of an economy by how well it attains these objectives:

a. High levels and rapid growth of output and consumption;

b. A low unemployment rate and high employment;

c. Low and stable inflation.

instruments with which governments can steer the economy:

Fiscal policy

Determine the allocation of resources between private and collective goods.

Monetary policy

Affects all interest rates, asset prices, credit conditions, and exchange rates.

This are the central concepts for understanding the determination of national output and the price level.

Aggregate supply (AS)

Aggregate demand (AD)

Consists of the total spending in an economy by households, businesses, governments, and foreigners.

Describes how much output businesses would willingly produce and sell given prices, costs, and market conditions.

AS and AD curves have the same shapes as the familiar supply and demand curves analyzed in microeconomics.