Aggregate Demand Aggregate Supply by yurtgc548

VIEWS: 11 PAGES: 14

									           Aggregate Demand
            Aggregate Supply
I.  Aggregate Demand
   a. Who buys America’s pie (GDP)?
         i. Consumers
       ii. Investment (Businesses)
       iii. Government
       iv. Other Nations
                         more
These groups will buy _______ when the price
                       less
    level falls and _________ as the price level
    rises.
CHANGES IN AGGREGATE DEMAND

                          Aggregate Demand
                          Can Increase
Price level




                                            AD2
                                      AD1

              Real domestic output, GDP
CHANGES IN AGGREGATE DEMAND

                          Aggregate Demand
                          Can Increase
Price level                  …or Decrease




                                        AD1
                                  AD3

              Real domestic output, GDP
      Determinants of Consumer
              Spending
Determinants of Consumer Spending
a. Wealth (Stock Market)
b. Taxes
c. Debt
d. Expectations
Determinants of Investment Spending
a. Interest rates (how can interest rates change if
     the price level is constant?)
b. Business Taxes
c. Technology
4. Determinants of Foreign Nation
   Spending
a. Prosperity abroad
b. Value of the dollar in foreign exchange
   markets
c. If the dollar depreciates (gets weaker) to
   another nation’s currency then our
   exports to that country would go _____
                                      UP
   AD Increase or Decrease?
1. Congress cuts taxes.(fiscal policy?)
 AD increases, shifts __________
                         right
2. Stock market collapses, investors lose
   billions.
 AD decreases, shifts _________
                           left
3. Survey shows consumers are confident
   about the economy.
 AD increases, shifts ___________
                            right
              Aggregate Supply
•   More output will be produced at higher price
    levels and less at lower price levels.
Determinants of AS
1. Any change in resource prices.
 Price of imported resources
 Market Power
2. Any change in resource availability.
    a.   Land
    b.   Capital
    c.   Labor
    d.   Entrepreneurship
3. Change in productivity

What makes workers more productive?
 Education
 Technology
4. Government Regulation
An increase in Aggregate Supply will cause the AS
    curve to shift to the ______ and a decrease in
                          Right
    AS will cause the curve to shift to the ______
                                              Left
      AGGREGATE SUPPLY
              Changes in Aggregate Supply
 P                           AS3AS1AS2

               Decrease In
               Aggregate
Price level
                 Supply


                                         Increase In
                                          Aggregate
                                           Supply

                                              Q
               Real domestic output, GDP
     Fiscal Policy and the
        AD-AS Model
• Expansionary Fiscal Policy
 –Increased Government
  Spending
 –Tax Reductions
 –Some Combination of the Two
• Budget Deficit
                              What’s wrong with
                              This economy?
                                           recession
                      AS

                           Fiscal Policy
                           Needed?
PL
                                       Cut Taxes
                                       Increase
                AD1                    Government
           AD                          Spending
           FE
     GDP                      Expansionary
                              Fiscal Policy
Contractionary Fiscal Policy

                        What problem is this
                        economy facing ?
                            Demand Pull Inflation
                       AS
                                 Fiscal Tools?

     PL                       Decrease G
                              And Increase T

                            AD
                 AD1

            FE
                 GDP
             What ‘s Happening
•    To aggregate supply in the following situations?
1.   Labor Unions grow more aggressive; wage rates
     increase.
    AS decreases, shifts left (resource costs
2.   OPEC successfully increases oil prices.
    AS decreases, shifts left (resource costs
3.   Labor productivity increases dramatically.
    AS increases, shifts right
4.   The dollar appreciates in foreign exchange markets.
    AS increases, shifts right (price of imported inputs goes
     down)

								
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