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Lecture 14
Macroeconomics
Quiz 10: Sec__ Name__________
1. What is the equation for the Quantity
Theory of Money?
2. If velocity and output are constant, what
happens to P if M increases,?
Aggregate Demand
Aggregate Supply
Model
AD-AS Model
Supply
No matter the price
you can only produce
so much
Supply
a function of all of
your capitals
Total Spending
Prices x Output
one or both
Aggregate Demand
Money xVelocity
one or both
New Capital
Human Beings
Ideas
Human
Physical
Intellectual
Financial
Cultural
Markets
Entrepreneurs
Innovations
Price
Level
Quantity of Output
Long-Run Supply Curve
LRAS2
Y2
LRAS3
Y3
LRAS1
Y1
AD
Real GDP Growth Rate
Price
Level
AS
Adam Smith
Classical Model
AD
100
Price
Level
AS
Adam Smith
Classical Model
Recession
Unemployment
Real GDP
$6.50
$4.00
50
Father of
Macroeconomics
John Maynard Keynes
(1883 - 1946)
The GeneralTheory of
Employment,
Interest and Money
The ideas of economists and
political philosophers are more
powerful than commonly
understood; indeed the world is
ruled by little else.
AD
Price
Level
LRAS
Adam Smith
Neo-Classical Model
Real GDP
SRAS
John Keynes
Graphing Quiz
Total Spending Growth Rate is 12%
Inflation Rate is 8%
Growth Rate?
Reduce Money Growth Rate to 4%
Graph the Process
Explain
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
%
AD1
LRAS SRAS
AD2
8% Inflation
4% Growth
12% Total Spending
7% Inflation
1% Growth
8% Total Spending
4% Inflation
4% Growth
8% Total Spending
Short
Run
Long
Run
Aggregate Supply Curve
Aggregate Demand Curve
Great Depression 1929-1940
MV = PY
M = Reduced
V = Reduced
P = Stuck
Y = Reduced
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
AD
Real GDP Growth Rate
Inflation
Rate
π
LRAS
SRAS

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