Slide 1 : 9 Aggregate Demand and
Aggregate
Supply
Aggregate Demand and Aggregate Supply Equilibrium : REAL GDP PRICE LEVEL Aggregate Demand and Aggregate Supply Equilibrium
AD – AS Model : AD – AS Model Defined:
The amounts of real output(GDP)
Buyers collectively desire
At each possible price level
Why the Downward Slope?
Real-Balances Effect (Wealth)
Interest-Rate Effect
Foreign Purchases Effect
AD – AS Model : AD – AS Model Real Domestic Output, GDP Price Level AD Aggregate
Demand Aggregate Demand Curve
Why AD Slopes DownwardThe Real Balances (Wealth) Effect : Why AD Slopes DownwardThe Real Balances (Wealth) Effect Change in Price Level Change in Purchasing Power of Financial Assets Change
In
Consumption Change in
Aggregate
Expenditures
Why AD Slopes DownwardThe Interest Rate Effect : Why AD Slopes DownwardThe Interest Rate Effect
Why the Aggregate Demand Curve Slopes Downward : Why the Aggregate Demand Curve Slopes Downward
AD – AS Model : AD – AS Model Real Domestic Output, GDP Price Level AD Aggregate
Demand Aggregate Demand Curve
Consumer Changes in Aggregate Demand : Consumer Changes in Aggregate Demand Determinants of Aggregate Demand and Multiplier Effect
Changes in:
Consumer Spending
Consumer Wealth
Consumer Expectations
Household Debt
Personal Taxes
Investment Spending
Real Interest Rates
Business Changes in Aggregate Demand : Business Changes in Aggregate Demand Expected Returns
About Future Business Conditions
Technology
Degree of Excess Capacity
Business Taxes
Government Spending
Net Export Spending
National Income Abroad
Exchange Rates
Changes in Aggregate Demand : Changes in Aggregate Demand Real Domestic Output, GDP Price Level AD1 Increase in
Aggregate
Demand Changes in Aggregate Demand Curve AD3 AD2 Decrease in
Aggregate
Demand
Aggregate Supply : Aggregate Supply Aggregate Supply in the Short Run Real Domestic Output, GDP Price Level 0 Qf Aggregate Supply
(Short Run)
Aggregate Supply : Aggregate Supply Aggregate Supply in the Long Run Real Domestic Output, GDP Price Level ASLR Long Run
Aggregate
Supply
Changes in Aggregate Supply : Changes in Aggregate Supply Determinants of Aggregate Supply
Changes in:
Input Prices
Domestic Resource Prices – Land, Labor, Capital
Prices of Imported Resources
Market Power
Productivity
Legal-Institutional Environment
Business Taxes and Subsidies
Government Regulation
Changes in Aggregate Supply : Changes in Aggregate Supply Understanding Productivity
Changes in Aggregate Supply : Changes in Aggregate Supply Real Domestic Output, GDP Price Level AS1 Increase in
Aggregate
Supply Changes in Aggregate Demand Curve AS3 AS2 Decrease in
Aggregate
Supply
Equilibrium and Changes in Equilibrium : Equilibrium and Changes in Equilibrium Real Domestic Output, GDP Price Level AD AS P1 P2 Q2 Q1 Qf AD1 Increase in Aggregate Demand Demand-Pull
Inflation
Equilibrium and Changes in Equilibrium : Equilibrium and Changes in Equilibrium Real Domestic Output, GDP Price Level AD1 AS P1 P2 Q1 Q2 Qf AD2 Decrease in Aggregate Demand Creates a
Recession a c b
Equilibrium and Changes in Equilibrium : Recession and Cyclical Unemployment
Deflation
Downward Price Inflexibility Due to:
Fear of Price Wars
Menu Costs
Wage Contracts
Morale, Effort, and Productivity
Efficiency Wages
Minimum Wage Equilibrium and Changes in Equilibrium
Equilibrium and Changes in Equilibrium : Equilibrium and Changes in Equilibrium Real Domestic Output, GDP Price Level AD AS P1 P2 Q1 Qf Decrease in Aggregate Supply Cost-Push
Inflation AS1 a b
Equilibrium and Changes in Equilibrium : Equilibrium and Changes in Equilibrium Real Domestic Output, GDP Price Level AD1 AS2 P1 P2 Q2 Q1 Increases in Aggregate Supply –
Full-Employment With Price-Level Stability AS1 b AD2 c P3 Q3 a