To summarize .IN the short run, output can be above or below its natural level Changes in any of the variables that enter either the aggregate supply or aggregate demand relation lead to changes in output and prices e In the medium run, however, output eventually returns to its natural level the adjustment process works through prices. When output is above its natural level prices increase Higher prices decrease demand and output When output is below its natural level, prices decrease, increasing demand and output 2003-7-20
2003-7-20 11 To summarize IN the short run, output can be above or below its natural level .Changes in any of the variables that enter either the aggregate supply or aggregate demand relation lead to changes in output and prices. In the medium run, however, output eventually returns to its natural level. The adjustment process works through prices. When output is above its natural level, prices increase. Higher prices decrease demand and output. When output is below its natural level, prices decrease, increasing demand and output
9-4: The Effects of a Monetary Expansion e The dynamics of Adjustment o Looking behind the scene ● The Neutrality 2003-7-20 12
2003-7-20 12 9-4: The Effects of a Monetary Expansion The Dynamics of Adjustment Looking Behind the Scene The Neutrality