Chapter 40, Problem 2CYU

To determine

How the long-run economic growth and short-term fluctuations using aggregate demand and aggregate supply can be represented.

Explanation of Solution

By using the aggregate demand and supply model, long-run economic growth can be shown by representing the outward shift in the curve. The short-run fluctuations are different from the long-run aspects. Thus, fluctuated output level can be shown above or below the potential output level.

For instance, the aggregate shown below is showing outward shift that represents economic growth.

  

Graph 1

The short-run and long-run fluctuations can be shown as follows:

  

Graph 2

Economics Concept Introduction

Production Possibilities Curve: The production possibility curve refers to the curve that represents the possible production of two products that requires similar resources.