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Eco 202 ch 34 aggregate demand and aggregate supply
This document provides an overview of aggregate demand and aggregate supply models. It defines key economic terms like recession, depression, stagflation, and the natural rate of output. It also explains the aggregate demand curve, why it slopes downward, and what can cause it to shift. The short-run and long-run aggregate supply curves are introduced, and factors that can shift or change each curve, like capital investment and expectations, are outlined. Examples of using the AD-AS model to analyze economic events are provided.
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Eco 202 ch 34 aggregate demand and aggregate supply
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- 3. Key Terms recession depression natural rateof output stagflation
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- 7. Recession A period ofdeclining real incomes and rising unemployment defined as negative growth for two quarters (six months)
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- 9. Three Key Facts Irregularand Unpredictable Variables fluctuate together Output falls - Unemployment increases
- 10. Variables GDP Financial System Interest Rates Unemployment MonetarySystem Trade Balance
- 11. Real - Quantities Nominal- Money
- 12. ClassicalView Real qualities matter Amountof money does not matter
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- 14. Long Run andShort Run Good in the short run Bad in the long run Bad in the short run Good in the long run
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- 16. Price Level Quantity of Output Equilibrium price level Equilibrium output AD-AS Model Aggregate Demand Aggregate Supply
- 17. Price Level Quantity of Output Whydoes the demand curve slope downward?
- 18. Price Level Quantity of Output Y1 AggregateDemand Y2 P1 P2 1. real wealth increases 2. interest rates fall 3. exchange rates depreciate increase spending increase investments increase exports
- 19. Price Level Consumption -Wealth Effect Investment - Interest-Rate Effect Net Exports - Exchange-Rate Effect
- 20. Wealth Effect Lower prices Buymore stuff Increase output Higher prices Buy less stuff Decrease output
- 21. Nominal - alwaysone riyal - fixed Real - what it will buy - varies
- 22. Lower prices Need lessmoney 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
- 23. Exchange-Rate Effect Lower prices Causeinterest 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
- 24. Price Level Quantity of Output DemandShift change in consumption change in investment government purchases net exports
- 25. Quiz 1 1. Namethree 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)
- 26. Aggregate Demand Curve SlopesDownward Wealth Interest Rate Exchange Rate Shifts Consumption Investment Government Net Exports
- 27. Aggregate Supply Curve TwoCurves Short Run Long Run
- 28. Two Supply Curves ShortRun Long Run
- 29. Short Run Adrenaline Give 110% Pushto exceed normal capacity
- 30. Long Run Run outof Adrenaline Fall back to normal Cannot do 110% forever unless.....
- 31. Long Run SupplyCurve New Capital Human Physical Intellectual Financial Cultural
- 32. Price Level Quantity of Output TwoSupply Curves Short-Run Aggregate Supply Long-Run Aggregate Supply Price change does not affect the quantity of goods and services P
- 33. Price Level Quantity of Output P1 AD-AS Model Aggregate Demand Short Run Aggregate Supply Y1 Y2 P2 Long Run Aggregate Supply P3
- 34. New Capital Human Physical Intellectual Financial Cultural Price Level Quantity ofOutput Two Supply Curves LRAS1 Y1 LRAS2 Y3 LRAS3 Y3
- 35. New Capital Human Physical Intellectual Financial Cultural Price Level Quantity ofOutput Two Supply Curves LRAS1 Y1 LRAS2 Y3 LRAS3 Y3 P1 P2 P3
- 36. 1. Name threereasons why the Short-Run Aggregate-Supply Curve slopes upward. 2. Name four reasons why the Short-Run Aggregate-Supply Curve shifts Sticky Wage, Sticky Price, Misperceptions Capital (5 things) Expected Price Level Quiz 2
- 37. 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
- 38. Stagflation A period offalling output and rising prices
- 39. 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
- 40. Price Level Quantity of Output AD-AS Model Aggregate Demand Short Run Aggregate Supply Long Run Aggregate Supply
- 41. What if? 1. Newtechnological innovation? 2. Large increase in money supply? 3. People become worried about the future? 4.The supply of oil is suddenly reduced?
- 42. What Shifts AggregateDemand? 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
- 43. What Shifts ShortRun Aggregate Supply? 1. Capital: Cultural, Physical, Financial, Human, Intellectual 2. Expectations: decrease-right, increase- left
- 44. Can you havea nominal change but not a real change? Price level changes but output stays the same