This document discusses macroeconomic concepts related to GDP and the price level. It introduces the aggregate demand curve, which slopes downward, and the aggregate supply curves - the short-run aggregate supply curve, which slopes upward due to sticky wages and prices, and the long-run aggregate supply curve, which is vertical. In the long run, aggregate supply can shift right due to new capital in areas like physical, financial, human, and intellectual capital. The document also discusses how shifts in aggregate demand and supply impact output and price levels in both the short-run and long-run using the AD-AS model.

2. Macroeconomics
Lecture 10
GDP and the Price Level

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

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

5. Aggregate Supply Curve
Two Curves
Short Run
Long Run

6. Two Supply Curves
Short Run
Long Run

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

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

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

10. 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

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

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

13. 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

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

15. 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

16. 1. If AD shifts to the right faster than the LRAS,
what happens to the price level?
2. If LRAS shifts to the right faster than AD, what
happens to the price level?
3. If LRAS shifts to the left faster than AD, what
happens to the price level?
Increases
Decreases
Increases
Quiz

17. 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

18. Stagflation
A period of falling output
and rising prices

19. 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

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

21. 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

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