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RATIONAL BEHAVIOR: The notion that people make decisions based on the desire to obtain the greatest amount of satisfaction. Rational behavior essential means that people prefer more to less. The presumption of rational behavior underlies most economic analyses, especially those applied to consumer demand theory.

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Lesson 15: Aggregate Market | Unit 2: Equilibrium Page: 7 of 22

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Equilibrium in the aggregate market occurs when the forces of aggregate demand and aggregate supply are balanced.
  • Equilibrium is a balance of forces that will remain unchanged until some other, outside force intervenes.
  • For the market, the forces are supply and demand. For the aggregate market, the forces are aggregate demand and aggregate supply.
  • The aggregate demand force is our four sectors who want GDP at the lowest price level possible.
  • The aggregate supply force is our scarce resources who want to sell GDP at the highest prices possible.

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LONG-RUN AGGREGATE MARKET

A macroeconomic model relating the price level and real production under the assumption that ALL prices are flexible. This is one of two aggregate market submodels used to analyze business cycles, gross production, unemployment, inflation, stabilization policies, and related macroeconomic phenomena. The other is the short-run aggregate market. The long-run aggregate market isolates the interaction between aggregate demand and long-run aggregate supply. The key assumption of this model is that ALL prices, especially resource prices, are flexible. The primary result of this model is that the economy achieves long-run equilibrium at full-employment real production.

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Today, you are likely to spend a great deal of time surfing the Internet looking to buy either a pair of designer sunglasses or looseleaf notebook paper. Be on the lookout for door-to-door salesmen.
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The first paper currency used in North America was pasteboard playing cards "temporarily" authorized as money by the colonial governor of French Canada, awaiting "real money" from France.
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