Explain How the Aggregate Demand and Supply Model Can Be

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The Answer is We can make the aggregate demand and supply model dynamic rather than static by making three changes to the basic model. First, potential GDP increases continually because the long-run aggregate supply curve normally continually shifts to the right. This is because workers are continually entering the labour force, technological change occurs, and the economy accumulates machinery and equipment. Secondly, aggregate demand shifts to the right during most years. This is because population and income increases over time. Finally, the short-run aggregate supply curve shifts to the right, except for periods of time when workers and firms expect high rates of inflation.

Explain How the Aggregate Demand and Supply Model Can Be

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