6. How do we find national equilibrium?

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Aggregate Demand, Aggregate Supply

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6. How do we find national equilibrium?

  1. 1. How can we analyze economic fluctuations?<br />Aggregate Demand and Aggregate Supply<br />
  2. 2. The History of Recessions in the US<br />
  3. 3. Aggregate Demand<br />REAL GDP<br />AND<br />PRICE LEVELS<br />Aggregate demand curve shows the relationship between:<br />Aggregate spending on domestic output (X AXIS)<br />Average price levels (Y AXIS)<br />
  4. 4. What does this look like?<br />
  5. 5. Why is it downward sloping? <br />Foreign Sector Substitution effect:<br />If prices rise domestically<br />Look internationally<br />If prices fall domestically<br />Buy more domestically<br />
  6. 6. Why is it downward sloping? <br />Interest rate effect:<br />If prices rise  <br />Need to borrow more<br />Interest rates rise<br />I falls<br />C falls<br />If prices fall <br />Need to borrow less<br />Interest rates fall<br />I increases<br />C increases<br />
  7. 7. Why is it downward sloping? <br />The Wealth effect:<br />If price rises <br />The purchasing power falls<br />The quantity of domestic output demanded falls<br />
  8. 8. SHIFTs IN THE AD<br />Consumption will…<br />Investment will…<br />
  9. 9. AD SHIFTS: G and NX (X-M)<br />Government spending will <br />Net Exports <br />
  10. 10. Representations of Shifts in the AD<br />Increase of AD (right) <br />Decrease in AD (left)<br />
  11. 11. Governmental Policies<br />Taxes<br />Can increase or decrease C and I<br />Government Spending<br />Increase G<br />Increase Money<br />More C and More I<br />Decrease Money<br />Less C and Less I<br />Fiscal Policy<br />Monetary Policy<br />
  12. 12. Presentation Guidelines<br />1. Establish roles: (see back board) 2 min.<br />2. Read your excerpt and fill in WS. 5 min.<br />3. Find another credible source for info. 5 min.<br />4.Create your presentation of information and include: 15 min.<br />Description of your concept (50 points)<br />Graphs or image of your concept (20 points)<br />Jingle, rap, acronym, or dance to remember your concept (20 points)<br />Creativity (10 points) <br />
  13. 13. Aggregate Supply<br />PL<br />And <br />Real GDP<br />Shows the relationship between average price level and the domestic output produced<br />
  14. 14. SHORT RUN VS. LONG RUN<br />Input $ do not adjust to changes in the PL<br />Keynesian school<br />Input $ are flexible and adjust to changes in PL<br />Classical school<br />SHORT RUN: PD. OF TIME WITH STICKY PRICES (COSTS) AND WAGES<br />LONG RUN: PD. OF TIME WHEN PRICES (COSTS) AND WAGES ARE FLEXIBLE <br />
  15. 15. Short-Run Aggregate Supply (SRAS)<br />INPUT COSTS ARE STUCK AT A PRE-DETERMINED LEVEL<br />As prices increase <br />Firms produce more for a greater profit<br />As prices decrease<br />sales will fall, and producers produce less<br />PL<br />SRAS<br />GDPR<br />
  16. 16. HOW TO SHIFT THE SRAS<br /><ul><li>INPUT PRICES or COSTS such as WAGES
  17. 17. ECONOMIC GROWTH
  18. 18. GOVERNMENT REGULATION</li></li></ul><li>INCREASE AND DECREASE IN SRAS<br />DECREASE IN INPUT COSTS<br />INCREASE IN INPUT COSTS<br />SRAS1<br />PL<br />SRAS<br />PL<br />SRAS1<br />PL<br />SRAS<br />GDPR<br />GDPR<br />
  19. 19. Long-Run Aggregate Supply (LRAS)<br />PL<br />LRAS<br />GDPR<br />Yf<br />
  20. 20. HOW TO SHIFT THE LRAS<br />LIKE THE PPF <br />In the Long run, we are operating at Full Potential so…<br />CHANGE IN TECHNOLOGY<br />CHANGE IN LABOR PRODUCTIVITY<br />CHANGE IN CAPITAL<br />
  21. 21. THE DIFFERENT MODELS…<br />http://apecon.us/aggregatesupplykeynesianclassical2.swf<br />

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