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Looking at GDP can give us a good insight into what is happening in the economy as it related to the aggregate demand curve and aggregate supply curve. GDP is essentially output and inflation is essentially prices so we can refer back to our Unit 2 material to understand what is going on. When demand shifts, price, and quantity move in the same direction. So, if we see high inflation and high GDP growth, the aggregate demand curve is dominant in the economy. When supply shifts, however, price and quantity move in opposite directions. That means if we have deflation or low inflation and GDP is increasing, then the aggregate supply curve is dominant in the economy. This is true in the short-run, but in the long-run, the aggregate supply curve is vertical (straight up and down). What does that mean for how changes in aggregate demand will affect the economy?

Date Posted: 05/06/2020
Category: Economics
Due Date: 05/06/2020
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