Aggregate Demand and Aggregate Supply Review

Answer To Try It Problem

All components of aggregate demand (consumption, investment, government purchases, and net exports) declined between 1929 and 1933. Thus the aggregate demand curve shifted markedly to the left, moving from AD₁₉₂₉ to AD₁₉₃₃. The reduction in nominal wages corresponds to an increase in short-run aggregate supply from SRAS₁₉₂₉ to SRAS₁₉₃₃. Since real GDP in 1933 was less than real GDP in 1929, we know that the movement in the aggregate demand curve was greater than that of the short-run aggregate supply curve.