Download Chapter 17 - Aggregate Demand and Aggregate Supply

Fig. 1 The Two-Way Relationship
Between Output and the Price Level
Aggregate Demand Curve
Price
Level
Real
GDP
Aggregate Supply Curve
Fig. 2 Deriving the Aggregate
Demand Curve
Price
Level
140
K
J
100
AD
6
10
Real GDP
($ Trillions)
Fig. 3 A Spending Shock
Shifts the AD Curve
Price
Level
100
H
E
AD1
10
15
AD2
Real GDP
($ Trillions)
Fig. 4a Effects of Key Changes on
the Aggregate Demand Curve
(a)
Price Level
Price level ↑ moves
us leftward along
the AD curve
P3
Price level ↓ moves
us rightward along
the AD curve
P1
P2
AD
Q3
Q1
Q2
Real GDP
Fig. 4b Effects of Key Changes on
the Aggregate Demand Curve
(b)
Price Level
Entire AD curve shifts rightward if:
• a, IP, G, or NX increases
• Net taxes decrease
• The money supply increases
AD2
AD1
Real GDP
Fig. 4c Effects of Key Changes on
the Aggregate Demand Curve
(c)
Price Level
Entire AD curve shifts leftward if:
• a, IP, G, or NX decreases
decreases
• Net taxes increase
• The money supply decreases
AD1
AD2
Real GDP
Fig. 5 The Aggregate Supply Curve
Price Level
AS
130
B
100
80
Starting at point A, an
increase in output
raises unit costs.
Firms raise prices,
and the overall price
level rises.
A
C
Starting at point A, a decrease
in output lowers unit costs.
Firms cut prices, and the
overall price level falls.
6
10
13.5
Real GDP ($ Trillions)
Fig. 6 Shifts of the Aggregate
Supply Curve
AS2
Price Level
140
100
AS1
L
A
10
When unit costs rise at any
given real GDP, the AS curve
shifts upward–e.g., an increase
in world oil prices or bad
weather for farm production.
Real GDP ($ Trillions)
Fig. 7a Effects of Key Changes on
the Aggregate Supply Curve
(a)
Price Level
AS
Real GDP ↑ moves
us rightward along
the AS curve
P3
Real GDP ↓ moves
us leftward along
the AS curve
P1
P2
Q2
Q1
Q3
Real GDP
Fig. 7b Effects of Key Changes on
the Aggregate Supply Curve
(b)
Price Level
AS2
AS1
Entire AS curve shifts
upward if unit costs ↑ for
any reason besides an
increase in real GDP
Real GDP
Fig. 7c Effects of Key Changes on
the Aggregate Supply Curve
(c)
Price Level
AS1
AS2
Entire AS curve shifts
downward if unit costs ↓
for any reason besides
an decrease in real GDP
Real GDP
Fig. 8 Short-Run Macroeconomic
Equilibrium
AS
Price Level
B
140
E
100
F
AD
6
10
14
Real GDP ($ Trillions)
Fig. 9 The Effect of a Demand
Shock
AS
Price Level
130
115
100
H
J
E
AD1
10
13.5
12.5
AD2
Real GDP($ Trillions)
Fig. 10 The Long-Run Adjustment
Process
Price Level
AS2
AS1
P4
K
J
P3
P2
P1
H
E
AD2
AD1
YFE Y3 Y2
Real GDP
Fig. 11 Long-Run Adjustment After
Negative Demand Shock
Price Level
AS1
AS2
P1
P2
E
N
P3
M
AD1
AD2
Y2
YFE
Real GDP
Fig. 12 The Long-Run Adjustment
Process
Price Level
Long-Run AS Curve
K
E
M
AD1
AD2
AD3
YFE
Real GDP
Fig. 13 The Effect of Supply
Shocks
Price Level
Long-Run
AS Curve
AS2
AS1
R
AS3
P2
P1
E
T
P2
AD
Y2
YFE
Y3
Real GDP
Fig. 14a An AD and AS Analysis of
Two Recessions
1. In 1990, a supply shock from
(a)higher oil prices shifted the
AS curve leftward . . .
Price Level
AS1991
AS1990
R
P2
E
P1
2. causing output
to fall . . .
AD1990
3. and the price
level to rise.
Y2
YFE
Real GDP
Fig. 14b An AD and AS Analysis of
Two Recessions
4. In 2001, a demand shock from
(b) factors caused the AD
several
curve to shift leftward . . .
Price Level
AS2000
P2
E
R
P1
5. causing output
to fall . . .
AD2000
6. and the price
level to fall.
AD2001
Y2
YFE
Real GDP
Fig. 15a/b GDP and the Price Level
in Two Recessions
The 1990-91 Recession
(b)
Real GDP ($ Trillions)
(a)
6.75
CPI 140
6.72
135
6.69
6.66
130
6.63
125
6.60
120
1989:3 1990:2 1991:1
Year and Quarter
1989:3 1990:2 1991:1
Year and Quarter
Fig. 15c/d GDP and the Price Level
in Two Recessions
The 2001 Recession
(d)
Real GDP ($ Trillions)
(c)
9.35
CPI 178
9.30
176
9.25
9.20
174
9.15
172
9.10
2000:1
2001:1
Year and Quarter
2000:1
2001:1
Year and Quarter
Fig. 16 The Average Expansion Versus
Two Recent Jobless Expansions
Employment 1.04
Index
(Trough = 1)
1.03
After Average
Recession
1.02
After 2001
Recession
1.01
1.00
After 1991
Recession
0.99
-6
-4
-2
0
+2
+4
+6
+8
+10 +12
Months Before and After the Trough