Page 55 - DECO201_MACRO_ECONOMICS_ENGLISH

Macro Economics

Notes Figure 3.19
Y Product
Price Market
level AS

P E

AD
X
O Y output
f
The full employment output OY is same as 'aggregate supply'. Since aggregate supply is already
f
determined, the 'aggregate demand' determines the price level at which aggregate demand
equals supply. The price level at which the product market is in equilibrium is OP. (Figure 3.19).

Capital Market

The capital market brings equality between saving (leakages) and investment (injections) through
adjustments in the real ROI. The capital market ensures that the product market is in full
employment equilibrium. (Figure 3.20)

Figure 3.20

Y
Real Capital
R/I Market
S

Y E

I
X
O I S,I

Self Assessment

Multiple Choice Questions:

6. Supply of labour curve will shift to the right in all these cases, except:
(a) Increase in population
(b) Increase in the number of immigrants

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