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What is dynamic aggregate demand and supply model?9. Model2: Dynamic Aggregate Supply-Dynamic Aggregate Demand Model with Monetary. Policy Rule. This variation of the aggregate supply-aggregate demand model focuses on the relationship between real GDP and inflation and incorporates a monetary policy rule (Taylor rule).
What is dynamic aggregate demand?The dynamic aggregate demand curve is defined by a given monetary policy rule and illustrates a negative relationship between the quantity of output demanded and infla- tion. When inflation changes, the central bank follows its monetary policy rule and changes the nominal interest rate.
What are the main features of the aggregate demand aggregate supply model?Key points
The aggregate demand/aggregate supply model is a model that shows what determines total supply or total demand for the economy and how total demand and total supply interact at the macroeconomic level. Aggregate supply is the total quantity of output firms will produce and sell—in other words, the real GDP.
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