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July 11, 2025 

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ADJUSTMENT, LONG-RUN AGGREGATE MARKET: Disequilibrium in the long-run aggregate market induces changes in the price level that restore equilibrium. If the price level is above the long-run equilibrium price level, economy-wide product market surpluses cause the price level to fall. If the price level is below the long-run equilibrium price level, economy-wide product market shortages cause the price level to rise. In both cases long-run equilibrium is restored. Price level changes induce changes in aggregate expenditures but NOT changes in real production. The reason is that long-run aggregate supply is full-employment real production, which is unaffected by the price level.

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AUTONOMOUS INVESTMENT: Business investment expenditures that are unrelated to income or production (especially national income or gross national product). These are investment expenditures that would occur even if national income was zero. Autonomous investment is graphically depicted as the vertical intercept of the investment line relating investment to national income. Changes in autonomous investment, along with changes in other autonomous expenditures, are what trigger the multiplier effect.

     See also | investment expenditures | national income | gross domestic product | investment line | autonomous consumption | autonomous expenditure | multiplier | induced investment |


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AGGREGATE DEMAND DECREASE, SHORT-RUN AGGREGATE MARKET

A shock to the short-run aggregate market caused by a decrease in aggregate demand, resulting in and illustrated by a leftward shift of the aggregate demand curve. A decrease in aggregate demand in the short-run aggregate market results in a decrease in the price level and a decrease in real production. The level of real production resulting from the shock can be greater or less than full-employment real production.

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