3. The Wealth Effect / Real Balance Effect
Money assets (cash, saving accounts, and
bonds). With a lower price level, more goods
can be acquired.
4. The Interest Rate Effect
As price increases, demand for [credit] money
increases, which in turn increases the interest
rate, which in turn reduces the quantity of
aggregate expenditures.
{And vise versa for price decreases}
5. The Net Export Effect
When prices rise inside a country, imports
increase and exports decrease.
{and vise versa with prices lowering}
6. Models and Classical Economic Thought
Increases in aggregate demand won’t increase
employment, and only increase prices.
Say’s Law - “supply creates its own demand”.
Optimism - “If we sit by and do nothing,
statistically, eventually, everything will be
perfect.”
7. More Classical Economic Thought
As interest rates go up, so do savings;
inversely for business investment.
8. A Combatant Has Entered The Ring
Keynesian Economists say “demand creates its
own supply”. Government should be involved
with economy with fiscal and/or monetary
policy. Prices and wages should be sticky in the
short run. Savings and consumption are part of
income.
9. Aggregate Demand (cont,)
Aggregate demand is the total demand for all
final goods and services produced inside an
economy at a given time at a given price level.
10. Aggregate Demand (cont,)
Consumption + Investment + Gov. spending + Net
exports = Real GDP.
L’autre influences {de consumption} (shift):
Consumer Confidence (right), Household Income
(right), Household borrowing (right), Marginal
Propensity to Consume (right), Interest Rates (left),
and Marginal Propensity to Save (left).
11. L’autre Influences Plus
{D’investment}: Profit Expectations (right), New
Technologies Available (right), Investment Tax
Incentives (right), Access to New Foreign
Markets (right), Interest Rates (left).
{De Gov. Spending}: Infrastructure Gov.
Investment (right), Gov. Purchases via the
Political Process (right).
12. L’autre Influences Plus Plus
{Net Exports}: Domestic Quality of Products
(right), Foreign Household Income (right),
Market for Domestic Suppliers (right), Domestic
Price Level (left), Value of Domestic Currency
(left).
13. Cycles
(calling some of these things “cycles” seems
like a large leap to me)
Business Cycle key points: Expansion, Peak,
Recession/Contraction, Trough.
15. Stuff and Things
Net National Income is another term for factor
payments, which are payments used for land,
labor, and capital used in the production of
goods and services (GDP).
Misc. payments includes net interest, rents, and
royalties paid to government.