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
Previous
Slide
End
Show
11 - 1
11
C HAPTE R
Aggregate Demand
and
Aggregate Supply
Next
Slide
Click To Go
To Appendix
Copyright McGraw-Hill/Irwin, 2005
Aggregate Demand
Changes in AD
Determinants of AD
Aggregate Supply
Determinants of AS
Equilibrium &
Changes in
Equilibrium
Appendix
End
Show
11 - 2
•Amounts of Real Output
•Buyers Collectively Desire
•At Each Possible Price Level
Aggregate Demand Curve
Key Terms
Previous
Slide
AGGREGATE DEMAND
Defined:
Next
Slide
Down Sloping Due To:
•Real-Balances Effect
•Interest-Rate Effect
•Foreign Purchases Effect
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
Previous
Slide
End
Show
11 - 3
Next
Slide
Real domestic output, GDP
Copyright McGraw-Hill/Irwin, 2005
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
Previous
Slide
End
Show
11 - 4
Next
Slide
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
Previous
Slide
End
Show
11 - 5
Next
Slide
AD1
Real domestic output, GDP
Copyright McGraw-Hill/Irwin, 2005
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
End
Show
11 - 6
Change in Investment Spending
• Real Interest Rates
• Expected Returns
Key Terms
Previous
Slide
•Consumer Wealth
•Consumer Expectations
•Household Indebtedness
• Taxes
Next
Slide
• 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
Previous
Slide
End
Show
11 - 7
Next
Slide
Copyright McGraw-Hill/Irwin, 2005
AGGREGATE SUPPLY
Aggregate Demand
Changes in AD
Determinants of AD
Aggregate Supply
Determinants of AS
Equilibrium &
Changes in
Equilibrium
Appendix
Key Terms
Previous
Slide
End
Show
11 - 8
Next
Slide
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
Copyright McGraw-Hill/Irwin, 2005
AGGREGATE SUPPLY
Long Run
Aggregate Demand
Changes in AD
Determinants of AD
P
ASLR
Aggregate Supply
Equilibrium &
Changes in
Equilibrium
Appendix
Key Terms
Previous
Slide
End
Show
11 - 9
Price level
Determinants of AS
Long-run
Aggregate
Supply
Next
Slide
Full-Employment
Qf
Real domestic output, GDP
Copyright McGraw-Hill/Irwin, 2005
Q
AGGREGATE SUPPLY
Short Run
Aggregate Demand
Changes in AD
Determinants of AD
P
Aggregate Supply
Equilibrium &
Changes in
Equilibrium
Appendix
Key Terms
Previous
Slide
End
Show
11 - 10
Price level
Determinants of AS
AS
Aggregate
Supply
Short-run
FullEmployment
Next
Slide
Qf
Real domestic output, GDP
Copyright McGraw-Hill/Irwin, 2005
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
Previous
Slide
End
Show
11 - 11
Price level
Determinants of AS
Decrease In
Aggregate
Supply
AS2
Increase In
Aggregate
Supply
Next
Slide
Q
Real domestic output, GDP
Copyright McGraw-Hill/Irwin, 2005
DETERMINANTS OF AGGREGATE SUPPLY
Aggregate Demand
Changes in AD
Determinants of AD
Aggregate Supply
Determinants of AS
Equilibrium &
Changes in
Equilibrium
Appendix
Key Terms
Previous
Slide
End
Show
11 - 12
Next
Slide
Input Prices
Domestic Resource Prices
•Labor
•Land
•Capital
Prices of Imported Goods
Market Power
Copyright McGraw-Hill/Irwin, 2005
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
Previous
Slide
End
Show
11 - 13
Next
Slide
Productivity
=
Total Output
Total Inputs
Legal-Institutional
Environment
• Business Taxes and
Subsidies
• Government Regulation
Copyright McGraw-Hill/Irwin, 2005
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
Previous
Slide
End
Show
11 - 14
Next
Slide
Q
Real Domestic Output, GDP
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
Previous
Slide
End
Show
11 - 15
Next
Slide
Qf
Q 1 Q2
Real Domestic Output, GDP
Copyright McGraw-Hill/Irwin, 2005
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
Previous
Slide
End
Show
11 - 16
Price Level
Determinants of AS
b
P1
a
c
Next
Slide
Q1
Qf
Real Domestic Output, GDP
Copyright McGraw-Hill/Irwin, 2005
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
Previous
Slide
End
Show
11 - 17
Next
Slide
•Wage Contracts
•Morale, Effort, and
Productivity
•Efficiency Wages
•Minimum Wage
•Menu Costs
•Fear of Price Wars
Copyright McGraw-Hill/Irwin, 2005
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
Previous
Slide
End
Show
11 - 18
Next
Slide
Q1 Qf
Real Domestic Output, GDP
Copyright McGraw-Hill/Irwin, 2005
Q
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
Previous
Slide
End
Show
11 - 19
Price Level
Determinants of AS
P2
P1
a
AD1
Next
Slide
AD2
Q1 Q2 Q3
Real Domestic Output, GDP
Copyright McGraw-Hill/Irwin, 2005
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
Copyright McGraw-Hill/Irwin, 2005
short-run aggregate supply
curve
determinants of aggregate
supply
productivity
equilibrium price level
equilibrium real output
efficiency wages
menu costs
BACK
END
CHAPTER 11 - Appendix
Aggregate Demand
Changes in AD
Determinants of AD
Aggregate Supply
Determinants of AS
Equilibrium &
Changes in
Equilibrium
Appendix
Key Terms
Previous
Slide
End
Show
11 - 21
RELATIONSHIP OF THE AGGREGATE
DEMAND CURVE TO THE AGGREGATE
EXPENDITURES MODEL
Derivation of the
Aggregate Demand Curve
from the
Aggregate Expenditures Model
Illustrated…
Next
Slide
Copyright McGraw-Hill/Irwin, 2005
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
Previous
Slide
End
Show
11 - 22
Next
Slide
P3
3’
2’
P2
1’
P1
0
The Aggregate Demand
Can Be Constructed
AD
Q3 Q2
Q1
Real Domestic Output
Copyright McGraw-Hill/Irwin, 2005
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
Previous
Slide
End
Show
11 - 23
Q2
Increase in
Aggregate
Demand
P1
Next
Slide
AD1
0
Q1
Q2
AD2
Real Domestic Output
Copyright McGraw-Hill/Irwin, 2005
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
Previous
Slide
End
Show
11 - 24
Q2
Increase in
Aggregate
Demand
P1
Next
Slide
AD1
0
Q1
Q2
AD2
Real Domestic Output
Copyright McGraw-Hill/Irwin, 2005
Click To Return
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
Previous
Slide
End
Show
11 - 25
Next
Slide
Copyright McGraw-Hill/Irwin, 2005