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Aggregate Demand Aggregate Supply

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					Aggregate Demand
        &
Aggregate Supply
  in the SHORT RUN     Chris Meier
                     Penn Manor HS
  How is AGGREGATE different???
• It’s tempting to view this macro-
  model as just a larger version of
  market demand and supply.
• At first glance, the Market and
  Aggregate models appear
  identical.
   – BUT DON’T CONFUSE THEM…
• This model is used to measure the
  TOTAL OUTPUT vs. AVERAGE
  PRICE LEVEL for an entire
  economy at once.
  How is AGGREGATE different???
In Micro- …


In Macro- …



Why would this aggregate model
 NOT be affected by:
   – Change in Price of the good?
   – Change in Price of Related
     Goods?
   – Tastes / Preferences /
     Advertising…?
Gross Domestic Product (GDP)
               GDP = [C + I + G + NX]
               C   =

               I   =

               G   =

               NX =
When P , Why does Output Demanded            ??

                  1 - Wealth Effect
                  If price level 
                  ..value of dollars you’re holding ____
                  ..your ability to buy goods/services _____
                  2 - Interest-Rate Effect
                  If price level 
                  ..households/firms need less money to
                        meet their needs & wants,
                  ..investments ____
                  ..interest rates ____
                  ..this encourages households/firms to
                        borrow more,
                  ..willingness to buy goods/services _____
                  .
When P , Why does Output Demanded                   ??

                  3 - Exchange Rate Effect
                  If price level 
                  ..interest rates  (from #2)
                  ..US Investors invest more $$ abroad,
                  ..# of US Dollars in the market for foreign
                         currency exchange 
                  ..This causes the dollar to ________________
                         relative to the foreign currency (ex. Euro).
                  ..Because each dollar buys fewer units of foreign
                         currencies, foreign goods become more
                         expensive relative to domestic goods
                  ..Americans buy less abroad - US Imports ___
                  ..Foreigners buy more US goods - US Exports __
                  ..Both these factors cause _________________
Factors that SHIFT Aggregate Demand
                  GDP = [C + I + G + NX]
                  1 – Change in Consumer Spending (C)
                  2 – Change in Investment Spending (I)
                  3 – Change in Government Spending (G)
                  4 – Change in Net Exports (NX)
Effects of Shifts in AD
                  If AD , what will happen to:
                      the Price Level?

                       Real GDP?

                  If AD , what will happen to:
                      the Price Level?

                       Real GDP?
                  Complete:
                  ACTIVITY 1 – [Shifts in Aggregate
                       Demand]
When P , Why does Output Supplied            ???

                    Sticky Wage Theory –
                    •   Price Level …
                    •   Real Wages ____ …
                    •   Firms hire ____ workers…
                    •   Firms produce  goods/services


                    Sticky Price Theory
                    •   Price Level …
                    •   Leaves some firms with higher-than-
                        desired prices…
                    •   Depresses their sales… Capital ____
                    •   Firms produce  goods/services
Factors that SHIFT Aggregate Supply
                  Aggregate Supply can be SHIFTED by
                       any of the following?
                  1 – Change in _____________________
                          (L, L, C, Entrepreneurship)
                  2 – Change in ______________
                  3 – Change in ______________
                  4 – Change in ____________________ /
                       _________ / _____________



                  Complete:
                  ACTIVITY 2 – [Shifts in Aggregate Supply]
Effects of Shifts in AS
                 If AS , what will happen to:
                     the Price Level?

                     Real GDP?


                 If AS , what will happen to:
                     the Price Level?

                     Real GDP?
       Connection between
GDP  Investments  Unemployment
Practice: Shifting AD & AS
     Complete Activity 3
Practice: Shifting AD & AS
Practice: Shifting AD & AS
Practice: Shifting AD & AS
Practice: Shifting AD & AS
Practice: Shifting AD & AS
        Discussion Point:
Aggregate Supply in the LONG RUN



                       WHY VERTICAL??
       Review -- Terms & Concepts
Aggregate Demand                Aggregate Supply
   – Wealth Effect              Can be shifted by changes in:
   – Interest-Rate Effect          – Inputs (Land, Labor, Capital,
   – Exchange Rate Effect            Entrepreneurship)
                                   – Technology
Can be shifted by changes in:      – Productivity
   – Consumption                   – Government regulation /
   – Investment                      taxes / subsidies
                                   ______________________________________
   – Government Purchases
                                Macroeconomic Equilibrium
   – Net Exports
                                  Price Level
                                  GDP=C+I+G+NX
                                  Long Run vs. Short Run

				
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posted:10/8/2011
language:English
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