Reading Guide 9

Jim’s comments:  

Read Chapter 12.  As you read it, I suggest you get some scratch paper and sketch out some AD-AS diagrams.  As the book describes phenomena such as people-getting-pessimistic-about-their future and thus cutting their spending, sketch out the changes in the AD-AS diagram.  (that pessimistic scenario is a shift of the AD curve to the left).  Then consider how that causes the equilibrium point (AD=SRAS) to shift. Where is it now compared to where it was? Has the price level gone up or done? Employment/GDP up or down?

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Table of Contents from
Principles of Macroeconomics, 2e