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ECONOMICS, 5e
Roger Arnold
CHAPTER 7
Aggregate Demand and
Aggregate Supply
Exhibit 1 The Aggregate Demand Curve
Arnold Economics, 5e / Ch. 7 Aggregate Demand and Aggregate Supply
©2001 South-Western College Publishing
81
Exhibit 2a Why the Aggregate Demand Curve Is
Downward Sloping
Price level fallspurchasing power
risesmonetary wealth risesbuy
more goods.
Real Balance
Effect
Price level risespurchasing power
fallsmonetary wealth fallsbuy
fewer goods.
Arnold Economics, 5e / Ch. 7 Aggregate Demand and Aggregate Supply
©2001 South-Western College Publishing
82
Exhibit 2b Why the Aggregate Demand Curve Is
Downward Sloping
Price level fallspurchasing power
risesless money needed to buy
fixed bundle of goodssave
moresupply of credit risesinterest
rate fallsbusinesses and
households borrow more at lower
interest ratebuy more goods.
Interest Rate
Effect
Price level risespurchasing power
fallsborrow money in order to
continue to buy fixed bundle of
goodsdemand for credit
risesinterest rate risesbusinesses
and households borrow less at higher
interest ratebuy fewer goods.
Arnold Economics, 5e / Ch. 7 Aggregate Demand and Aggregate Supply
©2001 South-Western College Publishing
83
Exhibit 2c Why the Aggregate Demand Curve Is
Downward Sloping
Price level in U.S. falls relative to
foreign price levelsU.S. goods
relatively less expensive than
foreign goodsboth American and
foreigners buy more U.S. goods.
International
Trade Effect
Price level in U.S. rises relative to
foreign price levelsU.S. goods
relatively more expensive than
foreign goodsboth Americans
and foreigners buy fewer U.S.
goods.
Arnold Economics, 5e / Ch. 7 Aggregate Demand and Aggregate Supply
©2001 South-Western College Publishing
84
Exhibit 3 A Change in the Quantity Demanded of Real GDP
versus a Change in Aggregate Demand
Arnold Economics, 5e / Ch. 7 Aggregate Demand and Aggregate Supply
©2001 South-Western College Publishing
85
Exhibit 4 Changes in Aggregate Demand
Arnold Economics, 5e / Ch. 7 Aggregate Demand and Aggregate Supply
©2001 South-Western College Publishing
86
Exhibit 5 Factors That Change Aggregate Demand
Arnold Economics, 5e / Ch. 7 Aggregate Demand and Aggregate Supply
©2001 South-Western College Publishing
87
Exhibit 6 The Short-Run Aggregate Supply Curve
Arnold Economics, 5e / Ch. 7 Aggregate Demand and Aggregate Supply
©2001 South-Western College Publishing
88
Exhibit 7 Wage Rates and a Shift in the Short-Run
Aggregate Supply Curve
Arnold Economics, 5e / Ch. 7 Aggregate Demand and Aggregate Supply
©2001 South-Western College Publishing
89
Exhibit 8 Changes in Short-Run Aggregate Supply
Arnold Economics, 5e / Ch. 7 Aggregate Demand and Aggregate Supply
©2001 South-Western College Publishing
90
Exhibit 9 Short-Run Equilibrium
Arnold Economics, 5e / Ch. 7 Aggregate Demand and Aggregate Supply
©2001 South-Western College Publishing
91
Exhibit 10 Changes in Short-Run Equilibrium in the Economy
Arnold Economics, 5e / Ch. 7 Aggregate Demand and Aggregate Supply
©2001 South-Western College Publishing
92
Exhibit 11
How a Factor Affects the
Price Level, Real GDP,
and the Unemployment
Rate in the Short-Run
Arnold Economics, 5e / Ch. 7 Aggregate Demand and Aggregate Supply
©2001 South-Western College Publishing
93
Exhibit 12 A Summary Exhibit of AD and SRAS
Arnold Economics, 5e / Ch. 7 Aggregate Demand and Aggregate Supply
©2001 South-Western College Publishing
94
Exhibit 13 Long-Run Aggregate Supply (LRAS) Curve
Arnold Economics, 5e / Ch. 7 Aggregate Demand and Aggregate Supply
©2001 South-Western College Publishing
95
Exhibit 14 Equilibrium States of the Economy
Arnold Economics, 5e / Ch. 7 Aggregate Demand and Aggregate Supply
©2001 South-Western College Publishing
96
Exhibit 15 Different States of the Economy
Arnold Economics, 5e / Ch. 7 Aggregate Demand and Aggregate Supply
©2001 South-Western College Publishing
97