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M3: The wide-range monetary aggregate for the U.S. economy containing the combination of M2 (currency, checkable deposits, and assorted savings deposits) and large-denomination, institutional near monies. M3 contains financial assets that are relatively liquid, but not quite as liquid as those found in M1 or M2. The near monies added to M2 to derive M3 include large denomination certificates of deposit, institutional money market mutual funds, repurchase agreements, and Eurodollars. M3 is one of three monetary aggregates tracked and reported by the Federal Reserve System. The other two are designated M1 and M2.

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Lesson Contents
Unit 1: The Concept
  • What It Is
  • Two Sides: SRAS
  • Two Sides: LRAS
  • Two Sides: AD
  • Two Traits
  • Unit 1 Summary
  • Unit 2: Equilibrium
  • Concept
  • Three Markets
  • Moving Target
  • Unit 2 Summary
  • Unit 3: Doing Curves
  • Long-Run Equilibrium
  • Long-Run Disequilibrium: Too High
  • Long-Run Disequilibrium: Too Low
  • Short-Run Equilibrium
  • Unit 3 Summary
  • Unit 4: Self Correction
  • Short Run
  • Recessionary Gap
  • Inflationary Gap
  • Unit 4 Summary
  • Unit 5: Policy Preview
  • Time
  • Time of Adjustment
  • Unit 5 Summary
  • Course Home
    Aggregate Market

    This lesson is devoted to the exposition of the aggregate market, which combines the aggregate demand curve and the two aggregate supply curves into two related models used to analyze the macroeconomy. The main focus of this lesson is on how each of the two models, one for the short run and one for the long run, achieve equilibrium. A key conclusion is that the short-run equilibrium does not necessarily correspond to the full-employment production achieved by the long-run equilibrium. This creates recessionary and inflation gaps, which correspond to the macroeconomic problems of unemployment and inflation.

    • In the first unit of this lesson we ponder the basics of the aggregate market, including the importance of aggregate demand, aggregate supply, the price level, real production, unemployment, and inflation.
    • Moving into the second unit, we review the concept of equilibrium and see how it relates to the aggregate market in both the short run and the long run.
    • The third unit analyzes short and long-run equilibrium by combining the aggregate demand, short-run aggregate supply, and long-run aggregate supply curves.
    • The topic of self-correction is examined in the fourth unit, especially how automatic shifts of the short-run aggregate supply curve can eliminate recessionary and inflationary gaps.
    • The fifth and final unit of this lesson previews the use of the aggregate market to analyze business cycle stabilization policies, with particular emphasis on the time period of adjustment.

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    EQUILIBRIUM, SHORT-RUN AGGREGATE MARKET

    The state of equilibrium that exists in the short-run aggregate market when real aggregate expenditures are equal to full-employment real production with no imbalances to induce changes in the price level or real production. The opposing forces of aggregate demand (the buyers) and short-run aggregate supply (the sellers) exactly offset each other. At the existing price level, the four macroeconomic sectors (household, business, government, and foreign) purchase all of the real production that they seek and producers sell all of the real production that they have.

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