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Explain why the aggregate demand curve slopes downward and the short-run aggregate supply curve slopes upward.
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the aggregate demand curve slopes downward and we can understand this by taking a look at the components of the aggregate demand curve. We have consumption investment, government expenditure, and net exports. Now, for this particular one, we don't really need to pay so much attention to government expenditure, but looking particularly at consumption investment and exports. What we see here is that each one of these variables um declines with an increase in the price level. So we're seeing all of these expenditures. So we see a decrease in consumption investment and that exports as the price level increases. And it's for that reason that we see this downward slope, we can understand that maybe a little bit better if we were to actually take a look at an A. T. S diagram right here. Now we have output on the X. Axis and then we have the price level on the Y axis. So what we're seeing is that this is downward sloping, meaning as this price level is dropping, output is increasing. So that makes sense. Now the aggregate supply curve, on the other hand, slopes upward. Now the aggregate supply curve is sloping upward because of this idea of the sticky wages or sticky prices. Now, what this means, essentially is that it takes some time for these prices to adjust to any sort of price level, right, which means it's going to be upward sloping If we were to be looking at the long run aggregate supply curve. So I suppose this is really this short run aggregate supply curve. Long run aggregate supply is perfectly vertical because it has already adjusted to that price level. But short run our supply curve has not and that comes down to sticky wages and prices.
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