Macro 12

2. Macroeconomics Winter 2020

5. World War I
1914 - 1918
16 million deaths
In 1918 the Spanish Flu
50 million deaths
1.86 billion
2.7 percent

6. Today
7.6 billion
2.7%
205 million
Germany and Japan
Philippines x 2
1 in 37
81 students

7. The Two Problems of
Macroeconomics
Unemployment
Inflation

8. Two Supply Curves
Long-Run
Short-Run

9. 0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Real GDP Growth Rate %
Inflation
Rate
%
Long-Run
Supply is a
function of
Capitals
Cultural
Human Beings
Ideas
Physical
Human
Intellectual
Financial
Inventions
Entrepreneurs
Free Markets
Innovations
LRAS

10. 0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Real GDP Growth Rate %
Inflation
Rate
%
Short-Run
Supply is a
function of
Capitals
and Money
LRAS
SRAS

11. Short-Run Supply Curve
Adrenaline
Give 110%
Push to exceed normal
capacity

12. Long Run
Run out of Adrenaline
Fall back to normal
Cannot do 110% forever
unless.....

13. 0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Real GDP Growth Rate %
Inflation
Rate
%
Aggregate
Demand is a
function of:
Consumption
Investment
Government
Net Exports
and the
Money Supply

14. 0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Real GDP Growth Rate %
Inflation
Rate
%
AD
LRAS
SRAS Supply Curves
move together

15. 0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Real GDP Growth Rate %
Inflation
Rate
%
AD
LRAS
SRAS
Increase in
Aggregate
Demand
Short-Run
IncreaseY and
Increase P
Long-Run
DecreaseY and
Increase P

16. 0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Real GDP Growth Rate %
Inflation
Rate
%
AD
LRAS
SRAS
Decrease in
Aggregate
Demand
Short-Run
DecreaseY and
Decrease P
Long-Run
IncreaseY and
Decrease P

17. 0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Real GDP Growth Rate %
Inflation
Rate
%
AD
LRAS
SRAS
Increase in
Aggregate
Supply
IncreaseY and
Decrease P

18. 0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Real GDP Growth Rate %
Inflation
Rate
%
AD
LRAS
SRAS
Decrease in
Aggregate
Supply
DecreaseY and
Increase P

19. Aggregate Supply
Capitals

20. Aggregate Demand
Consumption
Investment
Government
Net Exports
Money Supply

21. Great Depression 1929-1940
MV = PY
M = Reduced
V = Reduced
P = Stuck
Y = Reduced

23. Aggregate Supply Curve

24. Aggregate Demand Curve

25. Taxes
Personal Taxes - Demand
Business Taxes - Supply

26. AD
Real GDP Growth Rate
Inflation
Rate
π
LRAS
SRAS

27. π Y
Quiz ADAS Modeling Inflation Output
Curve Direction Level Level
1. Good Weather
2. Slower Money Growth Rate
3. Lower Business Taxes
4. Decrease in Exports
5. New innovation
6. Lower electricity prices
7. Higher Personal Taxes
8. Earthquake