| | | | | | | Upon completion of this chapter you should | | | | | | | | | | understand how an aggregate-supply/aggregate-demand diagram can be used to portray business cycle behavior; | | | | | | | | | | be able to analyze a supply-side shock; and | | | | | | | | | | be familiar with ''supply-side economics." | | | | | | | | | | | 5.1 The Aggregate Supply Curve | | | | | | | | | The supply side in the Keynesian analysis introduced in the preceding chapter can be represented by an aggregate supply curve with three distinct zones, as illustrated by AS in figure 5.1. This curve shows how the quantity of output from firms increases as the overall price level increases. | | | | | | | | | Figure 5.1The AS/AD DiagramAn increase in government spending shifts AD to AD', moving the economy from A to B. | | | | |