Aggregate Demand / Aggregate Supply Topic Index

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Civilian Unemployment Rate

The macroeconomic equilibrium occurs at the level of real GDP where aggregate demand equals aggregate supply. If equilibrium real GDP is below the full-employment level, cyclical unemployment is positive and there is room in the economy for reducing the unemployment rate without accelerating inflation. In contrast if equilibrium real GDP exceeds the full-employment level, the unemployment rate cannot be sustained without accelerating inflation.

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Housing Starts

An increase in housing starts indicates that the demand for new housing has increased. If the increase in housing demand is spurred by an economy-wide factor such as a decline in interest rates, then aggregate demand will increase due to an economy-wide increase in demand for new housing.

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Money Supply (M2)

The money supply affects real GDP by way of aggregate demand. For example if the Federal Reserve feels that the economy is growing too slowly, it can expand the money supply. A rising money supply lowers interest rates, increases aggregate expenditures, and thus ultimately increases aggregate demand.

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Real GDP

The level of real GDP in an economy at any point in time is found at the macroeconomic equilibrium where aggregate demand equals aggregate supply. Economic growth can occur in the short run when aggregate demand and/or aggregate supply increases. In the long run, however, the level of real GDP is determined by the long-run aggregate supply curve, which is vertical at the full-employment output level.

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Real Per-Capita Disposable Income

An increase in real per-capita income, perhaps due to a rise in productivity, will cause consumption spending and aggregate expenditures to also increase. An increase in aggregate expenditures will cause the aggregate demand curve to shift outwards.

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Stock Prices: S&P 500

The sharp gains in the stock market, as indicated by 22.98% average annual return in the S&P 500 index in the five years ending in November 1998, may have contributed to an increase in aggregate consumer expenditures. A positive spending shock will shift out aggregate expenditures and aggregate demand, and thus can increase real GDP and the price level.

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