Syllabus T. Y. B. A. Paper : IV advanced economic theory with effect from academic year 2010-11 in idol

9.0 OBJECTIVES 
 
To study the economic fluctuations by looking more closely at 
aggregate demand 
To identify the variables that shift the aggregate demand 
curve, causing fluctuations in national income 
To examine fully the tools policy makers can use to influence 
aggregate demand.
To examine the Keynesian model when prices and wages are 
allowed to change and see that demand factors as well as 
supply factors play a role in output determination. In this 
sense the models considered in this Unit are a combination of 
the Classical and Keynesian model.
To develop the aggregate supply side of the economy.

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To examine the dynamic adjustment process that carries us 
from the short run to the long run, as the aggregate supply 
curve describe the price adjustment mechanism of the 
economy in the very short run, we know the aggregate supply 
is horizontal; and in the long run, we know the aggregate 
supply curve is vertical.
9.1 INTRODUCTION 
In section 9.2, we illustrate the demand-determined nature of 
output (income) in the Keynesian model. Here we derive a 
Keynesian aggregate demand curve i.e. macroeconomic demand 
schedule. In section 9.2.1 we shown shift in MDS and real balance 
effect due to fall in price level. In section 9.3 we illustrate labour 
market to derive aggregate supply curve.
In section 9.3.1 we shown shift in aggregate supply curve. In 
section 9.3.2 determination of equilibrium price level is shown with 
the intersection of MDS and aggregate supply curve. In section 
9.3.3 we examine the factors which determines equilibrium price. 
Section 9.4 show Shift in the MDS and equilibrium price or effect of 
monetary and fiscal policy on equilibrium price in Classical Model.
Section 9.5 examines the reasons given by modern economist on 
Classical preposition and stated that wages are sticky in short 
period. In section 9.6 we illustrate the meaning of Short Run, 
Medium Run and Long Run. In section 9.7 we study the 
macroeconomic experience in 1970s which was largely a story of 
Supply Shock. 
Sections 9.8 show the link between Inflation and 
Unemployment. Section 9.8.1 shows the trade off between inflation 
and unemployment. Sections 9.8.2 explain the Vertical Long 
– run 
Phillips Curve.