Transcript Chapter 11 Aggregate Demand & Aggregate Supply

Aggregate Demand
Changes in AD
Determinants of AD
Aggregate Supply
Determinants of AS
Equilibrium &
Changes in
Equilibrium
Appendix
Key Terms
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11
C HAPTE R
Aggregate Demand
and
Aggregate Supply
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To Appendix
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Aggregate Demand
Changes in AD
Determinants of AD
Aggregate Supply
Determinants of AS
Equilibrium &
Changes in
Equilibrium
Appendix
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•Amounts of Real Output
•Buyers Collectively Desire
•At Each Possible Price Level
Aggregate Demand Curve
Key Terms
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AGGREGATE DEMAND
Defined:
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Down Sloping Due To:
•Real-Balances Effect
•Interest-Rate Effect
•Foreign Purchases Effect
Graphically…
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AGGREGATE DEMAND CURVE
Aggregate Demand
Changes in AD
Determinants of AD
Determinants of AS
Equilibrium &
Changes in
Equilibrium
Appendix
Key Terms
Price level
Aggregate Supply
AD
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Real domestic output, GDP
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CHANGES IN AGGREGATE DEMAND
Aggregate Demand
Can Increase
Aggregate Demand
Changes in AD
Determinants of AD
Determinants of AS
Equilibrium &
Changes in
Equilibrium
Appendix
Key Terms
Price level
Aggregate Supply
AD2
AD1
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Real domestic output, GDP
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CHANGES IN AGGREGATE DEMAND
Aggregate Demand
Can Increase
…or Decrease
Aggregate Demand
Changes in AD
Determinants of AD
Determinants of AS
Equilibrium &
Changes in
Equilibrium
Appendix
Key Terms
Price level
Aggregate Supply
AD3
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AD1
Real domestic output, GDP
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DETERMINANTS OF AGGREGATE DEMAND
Change in Consumer Spending
Aggregate Demand
Changes in AD
Determinants of AD
Aggregate Supply
Determinants of AS
Equilibrium &
Changes in
Equilibrium
Appendix
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Change in Investment Spending
• Real Interest Rates
• Expected Returns
Key Terms
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•Consumer Wealth
•Consumer Expectations
•Household Indebtedness
• Taxes
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• Expected Future Business
Conditions
• Technology
• Degree of Excess Capacity
• Business Taxes
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DETERMINANTS OF AGGREGATE DEMAND
Government Spending
Aggregate Demand
Changes in AD
Determinants of AD
Aggregate Supply
Determinants of AS
Equilibrium &
Changes in
Equilibrium
Net Export Spending
• National Income Abroad
• Exchange Rates
Appendix
Key Terms
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AGGREGATE SUPPLY
Aggregate Demand
Changes in AD
Determinants of AD
Aggregate Supply
Determinants of AS
Equilibrium &
Changes in
Equilibrium
Appendix
Key Terms
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Defined:
•Levels of Real Domestic
Output
•At Each Possible Price
Level
•Long-run Supply Curve
•Wages and Resource
Prices Match Price Level
•Short-run Supply Curve
•Wages and Resource
Prices Do Not Match
Price Level
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AGGREGATE SUPPLY
Long Run
Aggregate Demand
Changes in AD
Determinants of AD
P
ASLR
Aggregate Supply
Equilibrium &
Changes in
Equilibrium
Appendix
Key Terms
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Price level
Determinants of AS
Long-run
Aggregate
Supply
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Full-Employment
Qf
Real domestic output, GDP
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Q
AGGREGATE SUPPLY
Short Run
Aggregate Demand
Changes in AD
Determinants of AD
P
Aggregate Supply
Equilibrium &
Changes in
Equilibrium
Appendix
Key Terms
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Price level
Determinants of AS
AS
Aggregate
Supply
Short-run
FullEmployment
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Qf
Real domestic output, GDP
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Q
AGGREGATE SUPPLY
Aggregate Demand
Changes in AD
P
Changes in Aggregate Supply
AS3
AS1
Determinants of AD
Aggregate Supply
Equilibrium &
Changes in
Equilibrium
Appendix
Key Terms
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Price level
Determinants of AS
Decrease In
Aggregate
Supply
AS2
Increase In
Aggregate
Supply
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Q
Real domestic output, GDP
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DETERMINANTS OF AGGREGATE SUPPLY
Aggregate Demand
Changes in AD
Determinants of AD
Aggregate Supply
Determinants of AS
Equilibrium &
Changes in
Equilibrium
Appendix
Key Terms
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Input Prices
Domestic Resource Prices
•Labor
•Land
•Capital
Prices of Imported Goods
Market Power
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DETERMINANTS OF AGGREGATE SUPPLY
Aggregate Demand
Productivity
Changes in AD
Determinants of AD
Aggregate Supply
Determinants of AS
Equilibrium &
Changes in
Equilibrium
Appendix
Key Terms
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Productivity
=
Total Output
Total Inputs
Legal-Institutional
Environment
• Business Taxes and
Subsidies
• Government Regulation
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EQUILIBRIUM AND CHANGES
IN EQUILIBRIUM
Aggregate Demand
Changes in AD
P
AS
Determinants of AD
Aggregate Supply
Equilibrium &
Changes in
Equilibrium
Appendix
Key Terms
Price Level
Determinants of AS
100
a
92
b
Equilibrium
Real Output
AD
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Q
Real Domestic Output, GDP
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INCREASES IN AD:
DEMAND-PULL INFLATION
Aggregate Demand
Changes in AD
P
AD1
AD2
AS
Determinants of AD
Aggregate Supply
Equilibrium &
Changes in
Equilibrium
Appendix
Key Terms
Price Level
Determinants of AS
P2
P1
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Qf
Q 1 Q2
Real Domestic Output, GDP
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Q
DECREASES IN AD: RECESSION
& CYCLICAL UNEMPLOYMENT
Aggregate Demand
Changes in AD
P
AD2
AD1
AS
Determinants of AD
Aggregate Supply
Equilibrium &
Changes in
Equilibrium
Appendix
Key Terms
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Price Level
Determinants of AS
b
P1
a
c
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Q1
Qf
Real Domestic Output, GDP
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Q
DECREASES IN AD: RECESSION
& CYCLICAL UNEMPLOYMENT
Aggregate Demand
Changes in AD
Determinants of AD
Aggregate Supply
Determinants of AS
Equilibrium &
Changes in
Equilibrium
Appendix
Key Terms
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•Wage Contracts
•Morale, Effort, and
Productivity
•Efficiency Wages
•Minimum Wage
•Menu Costs
•Fear of Price Wars
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DECREASES IN AS:
COST-PUSH INFLATION
Aggregate Demand
Changes in AD
AS2
P
AS1
Determinants of AD
Aggregate Supply
Equilibrium &
Changes in
Equilibrium
Appendix
Key Terms
Price Level
Determinants of AS
b
P2
a
P1
AD1
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Q1 Qf
Real Domestic Output, GDP
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INCREASES IN AS:
FULL EMPLOYMENT
Aggregate Demand
Changes in AD
Determinants of AD
Aggregate Supply
…With Price-Level Stability
AS1 AS2
P
P3
b
Equilibrium &
Changes in
Equilibrium
Appendix
Key Terms
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Price Level
Determinants of AS
P2
P1
a
AD1
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AD2
Q1 Q2 Q3
Real Domestic Output, GDP
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Q
aggregate demandaggregate supply (ADAS) model
aggregate demand
real-balances effect
interest-rate effect
foreign purchases effect
determinants of aggregate
demand
aggregate supply
long-run aggregate supply
curve
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short-run aggregate supply
curve
determinants of aggregate
supply
productivity
equilibrium price level
equilibrium real output
efficiency wages
menu costs
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CHAPTER 11 - Appendix
Aggregate Demand
Changes in AD
Determinants of AD
Aggregate Supply
Determinants of AS
Equilibrium &
Changes in
Equilibrium
Appendix
Key Terms
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RELATIONSHIP OF THE AGGREGATE
DEMAND CURVE TO THE AGGREGATE
EXPENDITURES MODEL
Derivation of the
Aggregate Demand Curve
from the
Aggregate Expenditures Model
Illustrated…
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DERIVATION OF THE AGGREGATE DEMAND CURVE
Changes in AD
Determinants of AD
Aggregate Supply
Determinants of AS
Equilibrium &
Changes in
Equilibrium
Aggregate expenditures
(billions of dollars)
Aggregate Demand
AE1 at P 1
2
3
0
Appendix
AE2 at P 2
AE3 at P 3
1
Q3
Q2
Q1
Price level
Key Terms
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P3
3’
2’
P2
1’
P1
0
The Aggregate Demand
Can Be Constructed
AD
Q3 Q2
Q1
Real Domestic Output
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To Presentation
SHIFTS IN THE AGGREGATE EXPENDITURES
SCHEDULE & THE AGGREGATE DEMAND CURVE
Changes in AD
Determinants of AD
Aggregate Supply
Determinants of AS
Equilibrium &
Changes in
Equilibrium
Appendix
AE2 at P 1
Aggregate expenditures
(billions of dollars)
Aggregate Demand
AE1 at P 1
Increase in
Aggregate
Expenditures
0
Q1
Price level
Key Terms
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Q2
Increase in
Aggregate
Demand
P1
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AD1
0
Q1
Q2
AD2
Real Domestic Output
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Click To Return
To Presentation
SHIFTS IN THE AGGREGATE EXPENDITURES
SCHEDULE & THE AGGREGATE DEMAND CURVE
Changes in AD
Determinants of AD
Aggregate Supply
Determinants of AS
Equilibrium &
Changes in
Equilibrium
Appendix
AE2 at P 1
Aggregate expenditures
(billions of dollars)
Aggregate Demand
AE1 at P 1
Increase in
Aggregate
Expenditures
0
Q1
Price level
Key Terms
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Q2
Increase in
Aggregate
Demand
P1
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AD1
0
Q1
Q2
AD2
Real Domestic Output
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To Presentation
Aggregate Demand
Changes in AD
Coming next...
Determinants of AD
FISCAL
POLICY
Aggregate Supply
Determinants of AS
Equilibrium &
Changes in
Equilibrium
Appendix
Chapter 12
Key Terms
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