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Price<br />

Level<br />

Real GDP<br />

SRAS<br />

AD 2 AD 1<br />

3. Increase in SRAS. An increase in SRAS is caused by a decrease in the overall costs of<br />

production. The factors that cause a decrease in the overall costs of production were<br />

discussed earlier in the chapter. If SRAS increases, the economy will reach a new short-run<br />

equilibrium at a lower price level and a greater quantity of Real GDP. This is illustrated on the<br />

aggregate market graph below. The increase in Real GDP will cause the unemployment rate<br />

to decrease.<br />

Price<br />

Level<br />

Real GDP<br />

SRAS1 SRAS 2<br />

4. Decrease in SRAS. A decrease in SRAS is caused by an increase in the overall costs of<br />

production. The factors that cause an increase in the overall costs of production were<br />

discussed earlier in the chapter. If SRAS decreases, the economy will reach a new short-run<br />

equilibrium at a higher price level and a lesser quantity of Real GDP. This is illustrated on the<br />

aggregate market graph on the next page. The decrease in Real GDP will cause the<br />

unemployment rate to increase.<br />

FOR REVIEW ONLY - NOT FOR DISTRIBUTION<br />

AD<br />

6 - 7 The Aggregate Market

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