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ADAM SMITH: A Scottish professor (born 1723, died 1790) who is considered the father of modern economics for his revolutionary book, entitled An Inquiry into the Nature and Causes of the Wealth of Nations published in 1776.

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Lesson 16: Aggregate Shocks | Unit 3: Basic Shifts Page: 8 of 21

Topic: AD Increase: Long Run <=PAGE BACK | PAGE NEXT=>

The long-run equilibrium is given by the intersection of the negatively-sloped AD curve and the vertical LRAS.
  • An increase in AD results in a new long-run equilibrium.
  • At the new equilibrium, real production does not change, it stays at Qf. The price level increases from Po to P1.
  • We're missing a lot of short-run action that occurs as we go from one long-run equilibrium to another.

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AGGREGATE DEMAND INCREASE, LONG-RUN AGGREGATE MARKET

A shock to the long-run aggregate market caused by an increase in aggregate demand resulting in and illustrated by a rightward shift of the aggregate demand curve. An increase in aggregate demand in the long-run aggregate market results in an increase in the price level but no change in real production. The level of real production resulting from the aggregate demand shock is full-employment real production.

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Today, you are likely to spend a great deal of time wandering around the downtown area hoping to buy either a rechargeable battery for your camera or a coffee cup commemorating the first day of spring. Be on the lookout for poorly written technical manuals.
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In the Middle Ages, pepper was used for bartering, and it was often more valuable and stable in value than gold.
"Now is the only time there is. Make your now wow, your minutes miracles, and your days pay. Your life will have been magnificently lived and invested, and when you die you will have made a difference."

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