Download AP Week 9 ADAS - Ector County ISD.

AP Week 9
Test over Unit 2 and begin Unit 3
No class on Wednesday due to field
trip and testing
• This week:
–
–
–
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We will cover modules 17-19
You will need to read each module the night before
Take notes over your reading
The PP are on my website for the week- you may use
them to help guide your reading. Remember that not
every detail in the book is on a slide- you need to read
also
– Create vocabulary cards for the terms in each module.
Vocabulary quiz next week.
– Be prepared to answer questions and to create graphs
from different problems, on worksheets, on
whiteboards with a partner and alone and share with
the class.
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Vocabulary
• Each of the bold terms in each unit
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Monday
HOMEWORK IS ON NEXT SLIDE
• Objective: You will test yourself over the concepts learned
in measuring the economy and recall prior knowledge from
basic economic concepts.
• You will read the test questions and analyze the data given
in written and graphical medium to answer the questions.
You will write your calculations on the test itself and put
your answer on the scan tran.
• Do Now: Turn in the rest of the packet, get your formula card out
and name on scan tran. Put all backpacks, and phones up- at front of
the room and counter.
• EQ: Did you study?
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For Tuesday:
• Read in the PDF book pages Module 17 (172178.) Be prepared to answer questions when you
come into class.
• As you read, take notes: Define AD, what does it
show the relationship between,
• List and explain the reasons it is downward
sloping, what are the components that the curve
represent?
• What causes the AD to shift? Left is? Rt is?
• Create vocabulary cards for the terms in the
module.
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TUESDAY- GET TEST RESULTS
• Objective: Be able to define AD, be able to create and
label a graph for AD and explain why it is downward
sloping. Know what the curve represents and what shift
the curve.
• You will share with your shoulder partner the definitions
that you wrote, you will work on practice graphs given
different scenarios to show what happens to the demand
curve. You will use the whiteboards and work with your
partner.
• Do Now: Get out your notes from reading and go over
them. Write in planner homework, Read and take notes
on Module 18 for Thursday.
• EQ: Can you explain the AD curve and compare it to a
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Demand
Aggregate Demand
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quiz
• Draw and label an Aggregate Demand
curve.
• What will happen to the AD if
– Consumers and firms are more optimistic?
– When the real value of households assets rise?
– When the existing stock of physical capital is
relatively small?
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What is Aggregate Demand?
Aggregate means “added all together.”
When we use aggregates
we combine all prices and all quantities.
Aggregate Demand is all the goods and services
(real GDP) that buyers are willing and able to
purchase at different price levels.
The Demand for everything by everyone in the US.
There is an inverse relationship between
price level and Real GDP.
If the price level:
•Increases (Inflation), then real GDP demanded falls.
•Decreases (deflation), the real GDP demanded
increases.
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Why does the AD curve slope
downward
• It is not due to the Law of Demand because:
– This is the increase of price level, not the
increase of price for one good.
– We are looking at the demand for all goodspeople might change what they demand but
they still buy.
– The curve is the C+I+G+XN, it is the demand
for all the goods and services produced
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Aggregate Demand Curve
Price
Level
AD is the demand by consumers,
businesses, government, and
foreign countries
What definitely doesn’t shift
the curve?
Changes in price level cause
a move along the curve
AD = C + I + G + Xn
Real domestic output (GDPR)
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Why is AD downward sloping?
1. WEALTH EFFECT
• Higher price levels reduce the purchasing
power of money
• This decreases the quantity of expenditures
• Lower price levels increase purchasing power
and increase expenditures
Example:
• If the balance in your bank was $50,000, but inflation
erodes your purchasing power, you will likely reduce
your spending.
• So…Price Level goes up, GDP demanded goes down.
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Why is AD downward sloping?
2. Interest-Rate Effect
• When the price level increases, lenders
need to charge higher interest rates to
get a REAL return on their loans.
• Higher interest rates discourage
consumer spending and business
investment. WHY?
• Example: An increase in prices leads to an increase
in the interest rate from 5% to 25%. You are less
likely to take out loans to improve your business.
• Result…Price Level goes up, GDP demanded goes
down (and Vice Versa).
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Why is AD downward sloping?
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Why is AD downward sloping?
3. Foreign Trade Effect
• When U.S. price level rises, foreign buyers
purchase fewer U.S. goods and Americans
buy more foreign goods
• Exports fall and imports rise causing real
GDP demanded to fall. (XN Decreases)
• Example: If prices triple in the US, Canada will no
longer buy US goods causing quantity demanded of
US products to fall.
• Again, Price Level goes up, GDP demanded goes
down (and Vice Versa).
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Shifters of
Aggregate Demand
GDP = C + I + G + Xn
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Shifts in Aggregate Demand
An increase in spending shift AD right, and decrease in
spending shifts it left
Price
Level
AD1
AD2
AD = C + I + G + Xn
Real domestic output (GDPR)
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Shifters of Aggregate Demand
1. Change in Consumer Spending
Consumer Wealth (Boom in the stock market…)
Consumer Expectations (People fear a recession…)
Household Indebtedness (More consumer debt…)
Taxes (Decrease in income taxes…)
2. Change in Investment Spending
Real Interest Rates (Price of borrowing $)
(If interest rates increase…)
(If interest rates decrease…)
Future Business Expectations (High expectations…)
Productivity and Technology (New robots…)
Business Taxes (Higher corporate taxes means…)
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Shifters of Aggregate Demand
3. Change in Government Spending
(War…)
(Nationalized Heath Care…)
(Decrease in defense spending…)
4. Change in Net Exports (X-M)
Exchange Rates
(If the us dollar depreciates relative to the euro…)
National Income Compared to Abroad
(If a major importer has a recession…)
(If the US has a recession…)
“If the US get a cold, Canada gets Pneumonia”
AD = GDP = C + I + G + Xn
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How does this cartoon relate to Aggregate Demand?
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How does this cartoon relate to Aggregate Demand?
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TUESDAY-Closing
• Objective: Be able to define AD, be able to create and
label a graph for AD and explain why it is downward
sloping. Know what the curve represents and what shift
the curve.
• You will share with your shoulder partner the definitions
that you wrote, you will work on practice graphs given
different scenarios to show what happens to the demand
curve. You will use the whiteboards and work with your
partner.
Homework: Read module 18 pages 180-190. take notes
• EQ: Can you explain the AD curve and compare it to a
demand curve? What are the reason’s the AD slopes
downward? Write them on sticky note with name and turn23
Wednesday
• I will not see the students today- field trip
and PSAT test
• 9th period will practice graphing and be able
to work on vocabulary
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Thursday- practice problems working with partners- turn in
set
• Objective: Be able to draw and explain the SRAS. Be
able to explain the terms sticky wages, explain why there is
a SRAS Be able to explain the difference of LRAS and the
impact of wages and input cost in the long run. Be able to
explain what shifts the AS with the acronym PEAR.
• Language: be able to read your notes, fill in as needed, be
able to listen to explanations and create AS with shifts
from the examples
• DO Now: Get your reading notes out, highlight new terms
– hmwk: Read Module 19(192-199) take notes use PP as
guide.
• EQ: What is SRAS? LRAS?, What shifts?
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• Quick review over demand- randomly call
on students from Mini-me’s
• Hand out the papers for practice on ADAS
• Students will collaborate and talk through
the problems after I model one.
• They will turn in the papers at end of class
as exit ticket
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Review- mini-me draws
1. Define Aggregate.
2. Define Aggregate Demand.
3. Explain and give an example of the
Wealth Effect.
4. Explain and give an example of the
Foreign Trade Effect.
5. Explain and give an example of the
Interest-Rate effect.
6. Identify the Shifters of AD.
7. Give examples for each shifter.
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Supply
Aggregate Supply
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What is Aggregate Supply?
Aggregate Supply is the amount of goods and
services (real GDP) that firms will produce in an
economy at different price levels.
The supply for everything by all firms.
Aggregate Supply differentiates between short
run and long-run and has two different curves.
Short-run Aggregate Supply
•Wages and Resource Prices will not increase
as price levels increase. These are referred to
as sticky wages
Long-run Aggregate Supply
•Wages and Resource Prices will increase as
price levels increase.
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Short-Run Aggregate Supply
In the Short Run, wages and resource prices will NOT
increase as price levels increase. (sticky wages)
Example:
• If a firm currently makes 100 units that are sold for
$1 each. The only cost is $80 of labor.
How much is profit?
• Profit = $100 - $80 = $20
What happens in the SHORT-RUN if price level
doubles?
• Now 100 units sell for $2, TR=$200.
How much is profit?
• Profit = $120
With higher profits, the firm has the incentive to
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increase production.
Since supply cost are generally input cost of materials and
wages we note that in the short run these costs do not increase
overnight.
We refer to the wages as sticky wages, nominal wages that are
slow to fall even in the face of high unemployment and slow to
rise even in the face of labor
Also note that nominal wages are the wages you actually are
paid- you make $10.00 an hour.
Your wages are often part of contracts and do not increase as
rapidly as prices might change.
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Aggregate Supply Curve
Price
Level
AS
AS is the
production of all
the firms in the
economy
Real domestic output (GDPR)
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Long-Run Aggregate Supply
In the Long Run, wages and resource prices WILL
increase as price levels increase.
Same Example:
• The firm has Total Revenue(TR) of $100 an uses $80
of labor.
• Profit = $20.
What happens in the LONG-RUN if price level doubles?
• Now TR=$200
•In the LONG RUN workers demand higher wages to
match prices. So labor costs double to $160
• Profit = $40, but REAL profit is unchanged.
If REAL profit doesn’t change
the firm has no incentive to increase output.
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Long run Aggregate Supply
In Long Run, price level increases but GDP doesn’t
Price level
LRAS
Long-run
Aggregate
Supply
Full-Employment
(Trend Line)
QY
GDPR
We also assume that in the long run the economy
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will be producing at full employment.
Shifts in Aggregate Supply
An increase or decrease in national production can shift
the curve right or left
AS2 AS
Price
AS1
Level
Real domestic output (GDPR)
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P
SHIFTERS OF AGGREGATE SUPPLY
changes in Productivity, this could happen due to new
technology or skills, education, etc.
E
changes is Expectation: if they expect prices will rise or
fall people will expect higher wages over time,
A
Actions by government: Taxes on Producers (Lower corporate
taxes…) Subsidies for Domestic Producers, (Lower subsidies for
domestic farmers…), Government Regulations, (EPA inspections
required to operate a farm…)
R
change in Resource (input) costs like wages and materials
(commodity prices)
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Thursday- closing
• Objective: Be able to draw and explain the SRAS. Be
able to explain the terms sticky wages, explain why there is
a SRAS Be able to explain the difference of LRAS and the
impact of wages and input cost in the long run. Be able to
explain what shifts the AS with the acronym PEAR.
• Language: be able to read your notes, fill in as needed, be
able to listen to explanations and create AS with shifts
from the examples
• Homework: Read module 19 pages 192-199. Create
vocabulary cards for new terms and take notes.
• EQ: What is SRAS? LRAS?, What shifts?
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Exit Ticket
• On white board draw a ADAS, correctly
labeled. Show it to another group for
confirmation and then to me.
• Write out PEAR and state what each letters
represent. Turn in.
• Don’t forget homework: read module 201208, notes for this are on my website to
guide your reading, be sure to take notes or
copy PP
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Friday• Objective: Today you will practice drawing and
answering ADAS at equilibrium questions so that
you can identify what curve shifts and what
directions it will shift. L. Objective: be able to
read sample questions and practice working with
ADAS with a partner
• Do Now: go over the reading notes from
yesterday, review the terms. Mark down
homework in planner: HMWK-Read and take
notes over Mod. 20 201-208.
• EQ: How will the graph shift by each situation?
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Shifters of Aggregate Demand
AD = C + I + G + X
Change in Consumer Spending
Change in Government Spending
Change in Investment Spending
Net EXport Spending
Shifters of Aggregate Supply
Change in PRODUCTIVITY
Change in Expectations
Actions by government
Change in Resource cost
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Practice
complete handout
on shifting
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THE AD-AS MODEL IS THE MOST FREQUENTLY
TESTED PART OF THE AP TEST. IT IS ALMOST ALWAYS
IN AT LEAST ONE OF THE FRQ.
YOU MUST BE ABLE TO DRAW AND SHIFT AS WELL AS
ANALYZE.
WE ARE ALWAYS CURRENTLY IN THE SHORT-RUN
LEVEL. SOMETIMES OUR SHORT-RUN LEVEL OF
OUTPUT IS BELOW, OR ABOVE THE ECONOMY’S
POTENTIAL LEVEL OF OUTPUT.
WITH NEW RESOURCES EMPLOYED, PRODUCTIVITY
IMPROVEMENTS AND TECHNOLOGY CHANGES DRIVE
LONG-RUN AGGREATE SUPPLY CHANGES.
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WHEN ASKED TO GRAPH THE EFFECT OF A CHANGE, GRAPH
THE FIRST THING THAT HAPPENS IN THE SHORT-RUN UNLESS
THE QUESTIONS TELLS YOU TO LOOK AT THE LONG-RUN.
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Putting AD and AS together to get
Equilibrium Price Level and Output
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DEMAND SHOCKS
• DEMAND SHOCKS ARE
EVENTS THAT SHIFT
THE AGGREGATE
DEMAND CURVE
NEGATIVE
DEMAND SHOCK SHIFTS
LEFT AND A POSITIVE
DEMAND SHOCK SHIFTS
TO THE RIGHT
WHAT HAPPENS TO
PRICE LEVEL AND
OUTPUT? NOTE THAT
THEY BOTH MOVE IN
SAME DIRECTION
RGDP
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SUPPLY SHOCKS
• SUPPLY SHOCKS SHIFT
THE SRAS CURVE.
THESE CAUSE THE
PRICE LEVEL AND THE
OUTPUT TO MOVE IN
OPPOSITE DIRECTIONS.
• NEGATIVE SHIFTS TO
THE LEFT. THE
COMBINATION OF
INFLATION AND
FALLING AGGREGATE
OUTPUT IS CALLED
STAGFLATION
NOTE WHAT HAPPENS
TO PRICE AND OUTPUT
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Pe
Ye
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Inflationary and
Recessionary Gaps
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Example: Assume the government increases
spending. What happens to PL and Output?
Price
Level
LRAS
AS
PL and Q will
Increase
PL1
PLe
AD
QY Q1
AD1
GDPR
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Inflationary Gap
Output is high and unemployment is less than NRU
LRAS
Price
Level
AS
Actual GDP
above potential
GDP
PL1
AD1
QY Q1
GDPR
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Example: Assume the price of oil increases
drastically. What happens to PL and Output?
Price
Level
LRAS
AS1
AS
PL1
Stagflation
PLe
Stagnate Economy
+ Inflation
AD
Q1 QY
GDPR
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Recessionary Gap
Output low and unemployment is more than NRU
LRAS AS1
Price
Level
Actual GDP
below potential
GDP
PL1
AD
Q1 QY
GDPR
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AD and AS Practice
Worksheet
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How does this cartoon relate to Aggregate Demand?
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Draw AD and AS at full employment
Price Level
LRAS
AS
P2
P1
AD2
AD=C+I+G+X
Qf Q2
(Y*or FE)
Output Increases
GDPR
PL Increases
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Short Run and
Long Run
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Shifts in AD or AS change the price level and
output in the short run
Price
Level
LRAS
AS
PLe
AD
QY
GDPR
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Example: Assume consumers increase
spending. What happens to PL and Output?
Price
Level
LRAS
AS
PL1
PLe
AD
QY Q1
AD1
GDPR
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Now, what will happen in the LONG RUN?
Inflation means workers seek higher wages and
production costs increase
LRAS AS1
Price
Level
AS
PL2
Back to full
employment with
higher price level
PL1
PLe
AD
QY Q1
AD1
GDPR
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Example: Consumer expectations fall and
consumer spending plummets. What happens to PL
and Output in the Short Run and Long Run?
Price
Level
LRAS
AS
AS1
AS increases as
workers accept lower
wages and production
costs fall
PLe
PL1
PL2
AD1
Q1 QY
AD
GDPR
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Friday- closing
• Objective: Today you will practice drawing
and answering ADAS at equilibrium
questions so that you can identify what
curve shifts and what directions it will shift.
L. Objective: be able to read sample
questions and practice working with ADAS
with a partner
• Homework: Read and take notes over Mod.
20 (201-208).
• Exit: On post it note, write down the steps
to analyze ADAS and turn it in.
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