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LRAS SFLS
- 1. AD/AS Model (Part 1– Long Run Supply)
- 2. AD / ASModel 3.) Short Run Aggregate Supply 1.) Philosophy Bias introduction 2.) Long Run Aggregate Supply 4.) Aggregate Demand Philosophy part has been removed, if desired you can download with the class version PPT.
- 3. Price level GDP AD SRAS PE LRAS YN Graph, trying toexplain the entire economy all at the same time Macroeconomics AD/AS Model
- 4. Price level GDP PE LRAS YN Graph, trying toexplain the entire economy all at the same time Macroeconomics AD/AS Model Focus on this curve first, this part first, might seem like a backwards way to learn it, but this was the first curve that was understood through history.
- 5. AD / ASModel 3.) Short Run Aggregate Supply 1.) Philosophy Bias introduction 2.) Long Run Aggregate Supply 4.) Aggregate Demand 2.2) LRAS slope 2.3) LRAS shifts 2.1) Classical theory
- 6. 2.1) Classical Theory Differentparts of this theory that brings us to the conclusions we will work with: Classical Dichotomy Quantity Theory of Money Neutrality of Money Velocity of Money - the theoretical 理论 separation of nominal and real variables. Hume and the classical economists suggested that monetary developments affect nominal variables but not real variables.
- 7. all nominal variables– including prices – will double. Nominal variables Real variables all real variables – including relative prices – will remain unchanged. for example: If central bank doubles the money supply: 2.1) Classical Theory
- 8. Gross Domestic Product (GDP) 国内生产总值 -the total market value of all goods and services produced over a specific time period. - one the primary indicators used to gauge 测量 the health of a country's economy. you can think of it as the size of the economy. The same concept of separating real and nominal variables can also be seen here.
- 9. Nominal GDP RealGDP The Real economy – Real factors that are independent of the price level. (actual stuff) The Money economy – Measured in the current prices of output. 2.1) Classical Theory
- 10. The difference is thatit is adjusting for inflation.
- 11. 2.1) Classical Theory Differentparts of this theory that brings us to the conclusions we will work with: Classical Dichotomy Quantity Theory of Money Neutrality of Money Velocity of Money (Q of Money) - The quantity of money determines the value of money.
- 12. Marvel Land DC Land Marvel Land Money DC land Money (CountryB)(Country A) FOREX graph example D from B D from A S from BS from A So A money = more valuable B/A A/B And B money = less valuable Remember this…Remember this? Value of money is based on the supply and demand for the money.
- 13. 2.1) Classical Theory Differentparts of this theory that brings us to the conclusions we will work with: Classical Dichotomy Quantity Theory of Money Neutrality of Money Velocity of Money (N of Money) - In the long run, the overall price level adjusts to the level at which the demand for money equals the supply of money. (nominal changes don’t affect real changes)
- 14. Price level GDP LRAS Y P1 P2 2.2) Long RunAggregate Supply Long Run Aggregate Supply (LRAS) Change in money supply and prices DON’T change endowments 能力of factors of production Therefore due to these theories, prices are flexible so this helps explains why the curve is vertical.
- 15. 2.1) Classical Theory Differentparts of this theory that brings us to the conclusions we will work with: Classical Dichotomy Quantity Theory of Money Neutrality of Money Velocity of Money (V of Money) Deal with this later when studying Inflation.
- 16. AD / ASModel 3.) Short Run Aggregate Supply 1.) Philosophy Bias introduction 2.) Long Run Aggregate Supply 4.) Aggregate Demand 2.2) LRAS slope 2.3) LRAS shifts 2.1) Classical theory
- 17. 0 1,000 2,000 3,000 4,000 5,000 6,000 0 100 200300 400 500 600 AxisTitle Axis Title The PPC could be a straight line, or bow- shaped. Depends on what happens to opportunity cost as economy shifts resources from one industry to the other. Production Possibilities Curve 枪炮 黄油 Similar idea as this.. The concept here is similar, just instead of trade- offs of the 2 goods…
- 18. Price level GDP LRAS YN Graph, trying toexplain the entire economy all at the same time Macroeconomics 2.) Long Run Aggregate Supply P1 P2 It’s the trade-off between the price level and the whole economy. The theory is that in the long run there really is no trade off, so it’s a vertical line.
- 19. Long Run Aggregate Supply (LRAS) -Total average output of an economy over the long run. also called potential output or full-employment output 2.2) Long Run Aggregate Supply Y*t = f (L, K, M) Y* is potential output. t is the time period. L is the quantity and ability of labor input available. K is the available capital stock. M is the availability of natural resources. (factors of production)
- 20. AD / ASModel 3.) Short Run Aggregate Supply 1.) Philosophy Bias introduction 2.) Long Run Aggregate Supply 4.) Aggregate Demand 2.2) LRAS slope 2.3) LRAS shifts 2.1) classical theory
- 21. 0 1,000 2,000 3,000 4,000 5,000 6,000 0 100 200300 400 500 600 AxisTitle Axis Title Consumption goods Capital goods Economic Growth - Sustained expansion of the production possibilities frontier - to have economic growth means to increase the PPF so more can be produced without having to trade-off for as much. Production Possibilities CurveSimilar idea as this.. Growing this shows growth...
- 22. Price level GDP LRAS Y LRAS1 Y 1 2.3) LongRun Aggregate Supply Shifting LRAS LRAS2 Y 2 Long Run Aggregate Supply (LRAS) The same idea here.
- 23. Long Run Aggregate Supply (LRAS) 2.3)Long Run Aggregate Supply Y*t = f (L, K, M) - Anything that changes these factors of production Shifting LRAS
- 24. Long Run Aggregate Supply (LRAS) ShiftingLRAS 2.3) Long Run Aggregate Supply - Changes in L (natural rate of unemployment) - Changes in population examples: shift right: - Immigration - More people get college degrees - Lots of older people retire 退休 - Govt policies reduce changing job rates shift left:
- 25. Long Run Aggregate Supply (LRAS) 2.3)Long Run Aggregate Supply - Changes in K - Changes in Technology Shifting LRAS examples: - Investment in factories, equipment - Productivity improvements from better technology - Factories destroyed by a hurricane飓风 shift left: shift right:
- 26. Long Run Aggregate Supply (LRAS) 2.3)Long Run Aggregate Supply - Changes in M - Changes in Natural Resources Shifting LRAS examples: shift left: - Discovery of new mineral deposits 矿藏 - Changing weather patterns that affect farming - Discovery of new mineral deposits 矿藏 shift right:
- 27. To summarize sofar…
- 28. 2.1) Classical Theory Differentparts of this theory that brings us to the conclusions we will work with: Classical Dichotomy Quantity Theory of Money Neutrality of Money Velocity of Money (Q of Money) (N of Money) (V of Money)
- 29. Long Run AggregateSupply Long Run Aggregate Supply (LRAS) Change in money supply and prices DON’T change endowments 能力of factors of production ***Prices are flexible Price level GDP LRAS Y P1 P2
- 30. Price level GDP LRAS Y LRAS1 Y 1 Long RunAggregate Supply Shifting LRAS LRAS2 Y 2 Y*t = f (L, K, M) - Anything that changes these factors of production Long Run Aggregate Supply (LRAS)
- 31. End of partone. thanks!