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ADJUSTMENT, SHORT-RUN AGGREGATE MARKET: Disequilibrium in the short-run aggregate market induces changes in the price level that restore equilibrium. If the price level is above the short-run equilibrium price level, economy-wide product market surpluses cause the price level to fall. If the price level is below the short-run equilibrium price level, economy-wide product market shortages cause the price level to rise. In both cases short-run equilibrium is restored. You might want to compare adjustment, long-run aggregate market. Price level changes induce changes in both aggregate expenditures and real production. Unlike the long-run aggregate market, changes in the price level can induce changes in short-run aggregate supply, making it greater or less than full-employment real production.

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Lesson 13: Aggregate Demand | Unit 3: The Curve Page: 12 of 22

Topic: Real-Balance Effect <=PAGE BACK | PAGE NEXT=>

The amount of production we purchase depends on how much money we have and the price of the production we want to buy.
  • A higher price level means money can buy less real production.
  • A lower price level means money can buy more real production.
The real-balance effect is when a change in the price level changes aggregate expenditures on real production because the purchasing power of money changes.
  • Real refers to the real purchasing power of money.
  • Balances refers to the balance of money we have to purchase.

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MONEY MARKET DEPOSITS

Interest-paying bank accounts maintained by traditional commercial banks, credit unions, savings and loan associations, and mutual savings banks that pay higher interest rates than standard savings accounts, but with minimum balance requirements and limited check writing capabilities. Money market deposit accounts were developed by banks in response to money market mutual funds offered by mutual fund companies. These deposits are typically considered a type of savings deposits, along with passbook accounts and share accounts. Money market deposits, along with these other savings deposits and assorted near monies, are added to M1 to derive M2.

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Today, you are likely to spend a great deal of time browsing through a long list of dot com websites hoping to buy either a coffee cup commemorating the 2000 Olympics or a birthday gift for your grandmother. Be on the lookout for florescent light bulbs that hum folk songs from the sixties.
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A half gallon milk jug holds about $50 in pennies.
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