Download 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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Aggregate Demand
AGGREGATE DEMAND
Defined:
Changes in AD
Determinants of AD
Aggregate Supply
Determinants of AS
Equilibrium &
Changes in
Equilibrium
Appendix
Key Terms
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•Amounts of real output
buyers collectively desire at
each possible price level.
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Graphically…
Copyright McGraw-Hill/Irwin, 2005
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
Copyright McGraw-Hill/Irwin, 2005
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
Copyright McGraw-Hill/Irwin, 2005
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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Copyright McGraw-Hill/Irwin, 2005
AGGREGATE SUPPLY
Aggregate Demand
Defined:
Changes in AD
Determinants of AD
Aggregate Supply
Determinants of AS
Equilibrium &
Changes in
Equilibrium
•Levels of real domestic
output at each possible price
level.
Appendix
Key Terms
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•Long-run Supply Curve
•Short-run Supply Curve
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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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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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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
Copyright McGraw-Hill/Irwin, 2005
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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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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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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