Macroeconomics: Theory and Policy

18

Aggregate Demand and Aggregate Supply

After studying this topic, you should be able to understand

• The aggregate demand curve charts out the IS–LM equilibrium while holding the nominal money supply and autonomous expenditures constant but allowing the prices to change.

• Shifts in the IS curve or the LM curve lead to shifts in the aggregate demand curve.

• Shifts in the IS and LM curves occur due to changes in the monetary or fiscal policy.

• According to the classical approach, the short-run aggregate supply curve is vertical.

• According to the Keynesian approach, the short-run aggregate supply curve is horizontal.

• It has also been put forward that the short-run aggregate supply curve is upward sloping.

• The intersection of the aggregate demand ...