Explain How the Static Aggregate Demand and Aggregate Supply Model

question 139

Essay

Explain how the static aggregate demand and aggregate supply model gives us misleading results about the price level,particularly with respect to decreases in aggregate demand.Describe how the aggregate demand curve is different in the dynamic model as compared to the static model.Describe how potential GDP is different in the dynamic model as compared to the static model.

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Definitions:

Availability Heuristic

Estimating the likelihood of events based on their availability in memory; if instances come readily to mind (perhaps because of their vividness), we presume such events are common.

Mental Set

A tendency to approach a problem in one particular way, often a way that has been successful in the past.

Classifying Objects

The cognitive process of organizing items into categories based on shared characteristics.

Algorithms

A defined set of step-by-step procedures or rules followed in calculations or problem-solving operations, especially by a computer.