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Y-AXIS: In a graph, this is one of two lines that intersect at a right angle. This is the "vertical axis" that runs up and down.

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Lesson 16: Aggregate Shocks | Unit 1: Instability Page: 1 of 21

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The aggregate market is a useful analysis for the study of the macroeconomy and its adjustments.
  • The aggregate market tends toward equilibrium.
Short-Run Equilibrium:
  • Intersection of AD and SRAS curves.
  • Expenditures on real output match production.
  • Labor market is prone to be out of equilibrium.
Long-Run Equilibrium:
  • Intersection of AD and LRAS curves.
  • Expenditures on real output match production.
  • Labor market in equilibrium.
Real world changes can be analyzed by examining how the aggregate market adjusts toward equilibrium.

To examine aggregate market adjustments we need to make use of the ceteris paribus concept.
  • The aggregate market curves, AD, LRAS, and SRAS, are constructed assuming other things remain unchanged.
  • The determinants of each curve, initially assumed constant, don't really stay unchanged, and they cause changes in the aggregate market.
  • The purpose of this aggregate market analysis is to help us to understand why the macroeconomy tends to be unstable, volatile and prone toward business cycles.

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DEMAND DECREASE AND SUPPLY INCREASE

A simultaneous decrease in the willingness and ability of buyers to purchase a good at the existing price, illustrated by a leftward shift of the demand curve, and an increase in the willingness and ability of sellers to sell a good at the existing price, illustrated by a rightward shift of the supply curve. When combined, both shifts result in an indeterminant change in equilibrium quantity and a decrease in equilibrium price.

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In 1914, Ford paid workers who were age 22 or older $5 per day -- double the average wage offered by other car factories.
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