The document provides information about an upcoming quiz insurance exam schedule and chapters to be covered. It also summarizes key concepts from Chapter 34 including the aggregate demand-aggregate supply model and factors that can cause shifts in aggregate demand and short-run aggregate supply. These include reasons for the downward sloping aggregate demand curve and reasons the short-run aggregate supply curve slopes upward and can shift.

1. Quiz Insurance
!
Tuesday April 29
12:00
S1-38 Men
S2-33 Women

2. Exam 6
Wednesday May 14
Chapters 34, 35, and 36
!
Final
Thursday May 22
9:00AM - 11:30AM
Auditorium
!

3. Chapter 34
!
Aggregate Demand
and
Aggregate Supply

4. Key Terms
recession
depression
natural rate of output
stagflation
!

5. Economic Cycle
Fluctuations

6. Economic Cycle

7. AD-AS Model
Aggregate Demand
and
Aggregate Supply

8. Recession
A period of declining real
incomes and rising
unemployment defined as
negative growth for two
quarters (six months)

9. Depression
Severe recession

10. Three Key Facts
Irregular and Unpredictable
Variables fluctuate together
Output falls - Unemployment
increases

11. Variables
GDP
Financial System
Interest Rates
Unemployment
Monetary System
Trade Balance

12. Real - Quantities
Nominal - Money

13. Nominal - always one riyal - fixed
!
Real - what it will buy - varies

14. Can you have a nominal change
but not a real change?
Price level changes but output
stays the same
!
Real - Quantity
Nominal - Price

15. ClassicalView
Real qualities matter
!
Amount of money does
not matter

16. NewView
Real qualities
interact with
nominal money

17. Long Run and Short Run
Good in the short run
Bad in the long run
!
Bad in the short run
Good in the long run

18. Lag
Time between cause
and effect

19. Price
Level
Quantity of Output
Equilibrium
price
level
Equilibrium
output
AD- AS Model
Aggregate
Demand
Aggregate
Supply

20. Price
Level
Quantity of Output
Why does the demand curve
slope downward?

21. Price
Level
Quantity of Output
Y1
Aggregate Demand
Y2
P1
P2
1. real wealth increases
2. interest rates fall
3. exchange rates depreciate
increase spending
increase investments
increase exports

22. Price Level
Consumption - Wealth Effect
Investment - Interest-Rate Effect
Net Exports - Exchange-Rate Effect

23. Wealth Effect
Lower prices
Buy more stuff
Increase output
Higher prices
Buy less stuff
Decrease output

24. Lower prices
Need less money
More money to loan
Lower rates
Borrow easy
Buy more stuff
Increase output
Interest Rate Effect
Higher prices
Need more money
Less money to loan
Higher rates
Borrow harder
Buy less stuff
Decrease output

25. Exchange-Rate Effect
Lower prices
Cause interest rates to decline
Causes currency to depreciate
Stimulates demand for local
currency
Stimulates exports
Increases local output
!
!
!
Higher prices
Cause interest rates to increase
Causes currency to appreciate
Stimulates demand for foreign
currency
Stimulates imports
Decreases local output
!
!
!

26. Price
Level
Quantity of Output
Demand Shift
change in consumption
change in investment
government purchases
net exports
!

27. Price
Level
Quantity of Output
P1
AD- AS Model
Aggregate
Demand
Short Run
Aggregate
Supply
Y1 Y2
P2
Long Run
Aggregate
Supply
P3

28. Quiz 1
1. Name three reasons why the Aggregate-
Demand Curve slopes downward.
!
!
2. Name four reasons why the Aggregate-
Demand Curve shifts
Wealth, Interest Rate, Exchange Rate
!
!
!
Consumption, Investment, Government, Net
Exports (C + I + G + NX)

29. Aggregate Demand Curve
Slopes Downward
Wealth
Interest Rate
Exchange Rate
!
Shifts
Consumption
Investment
Government
Net Exports

30. Aggregate Supply Curve
Two Curves
Short Run
Long Run

31. Two Supply Curves
Short Run
Long Run

32. Short Run
Adrenaline
Give 110%
Push to exceed normal
capacity
!

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

34. Long Run Supply Curve
New Capital
Human
Physical
Intellectual
Financial
Cultural

35. Price
Level
Real GDP orY
AD- AS Model
Aggregate
Demand
Short Run
Aggregate
Supply
Long Run
Aggregate
Supply
LRAS
Shape -Vertical
Capacity fixed
Shift
Physical
Financial
Human
Intellectual
Cultural
SRAS
Shape - Slope Up
Sticky Wages
Sticky Prices
Misperceptions
Shift
Physical
Financial
Human
Intellectual
Cultural
Expectations
AD
Shape - Slope Down
Wealth Effect
Interest Effect
Exchange Effect
Shift
Consumption
Investment
Government
Net Exports

36. Price
Level
Quantity of Output
Two Supply Curves
Short-Run
Aggregate
Supply
Long-Run
Aggregate
Supply
Price change
does not
affect the
quantity of
goods and
services
P

37. New Capital
Human
Physical
Intellectual
Financial
Cultural
Price
Level
Quantity of Output
Two Supply Curves
LRAS1
Y1
LRAS2
Y3
LRAS3
Y3

38. New Capital
Human
Physical
Intellectual
Financial
Cultural
Price
Level
Quantity of Output
Two Supply Curves
LRAS1
Y1
LRAS2
Y3
LRAS3
Y3
P1
P2
P3

39. 1. Name three reasons why the Short-Run
Aggregate-Supply Curve slopes upward.
!
!
2. Name six reasons why the Short-Run
Aggregate-Supply Curve shifts
Sticky Wage, Sticky Price, Misperceptions
!
!
!
Capital (5 things) and Expected Price Level
Quiz

40. 4 Step Analysis
1. Decide what curve the event affects.
2. Decide direction of the shift
3. Diagram impact
4. Analyze short-run to long-run

41. Stagflation
A period of falling output
and rising prices

42. Remember
1.Three curves:AD, SRAS, LRAS
2. Event can affect one or more of the
curves
3. Determine which curve and which
direction.
4. Diagram impact

43. What if?
1. New technological innovation?
2. Large increase in money supply?
3. People become worried about the
future?
4.The supply of oil is suddenly reduced?

44. What Shifts Aggregate Demand?
1. Consumption - tax cut/increase, stock
market increase/decrease
2. Investment - interest rate decrease/
increase
3. Government Purchases - More or Less
4. Net Exports - tied to exchange rates

45. What Shifts Short Run
Aggregate Supply?
1. Capital: Cultural, Physical, Financial,
Human, Intellectual
2. Expectations: decrease-right, increase-
left