Lecture materials for Topic 5: AD/AS

1. AD/AS Model
Spring 2013
Topic 5

2. The PPF (again)
2 dimensional model
Shifters

3. LRAS Curve
Reducing two dimensions to one

4. LRAS Curve
Reducing two dimensions to one
Regions

5. LRAS Curve
Reducing two dimensions to one
Regions
Shifters

6. LRAS Curve
Reducing two dimensions to one
Regions
Shifters
Pre-Keynesian understanding of production
A static model of a dynamic economy

7. The circular flow (again)
Basic model

8. The circular flow (again)
Basic model
Full(er) model
Leakages
Injections

9. The circular flow (again)
Basic model
Full(er) model
Size determines Nominal GDP
∑ PxQ

10. AD Curve

11. AD Curve
Slope
Real Balances Effect
Interest Rate Effect
Foreign Purchases Effect

12. AD Curve
Slope
Shifters
Leakages
Injections

13. LR Equilibrium
Intersection of LRAS/AD
Examples of change
Consumer confidence
Tax rates
Government expenditures
Money supply

14. LR Equilibrium
Intersection of LRAS/AD
Examples of change
Labor force
Regulations
Technology change

15. Does this match reality?

16. SRAS Curve
Constant input costs
Wages
Energy prices

17. SRAS Curve
Constant input costs
Why might they be constant?
Sticky wage theory

18. SRAS Curve
Constant input costs
Why might they be constant?
Diminishing marginal productivity
Effect on per unit costs?

19. SRAS Curve

20. SRAS Curve
Shifters
Factors of production
Costs of production

21. SR Equilibrium

22. SR Equilibrium
Examples of change
Tax rates
Interest rates
Labor force
Oil prices

23. Self correcting
mechanism

24. Self correcting
mechanism

25. Examples
Government spending
Money supply
Investor confidence

26. A special case: OPEC
Stagflation

27. The Great Recession

28. The Great Recession
Government policy changes
Technological changes
Regulatory changes
Behavioral changes