CHAPTER 20 EXHIBIT 1 The Aggregate Demand Curve

CHAPTER 20 EXHIBIT 1 The Aggregate Demand Curve Tucker, Economics for Today, 3 ed. Copyright © 2002 Thomson Publishing 200 Price level (CPI, 1982– 1984 = 100) A 150 B 100 50 AD 0 2 4 6 8 10 Real GDP (trillions of dollars per year) CAUSATION CHAIN Decrease in the price level Increase in the real GDP demanded 12

CHAPTER 20 EXHIBIT 3 A Shift in the Aggregate Demand Curve Tucker, Economics for Today, 3 ed. Copyright © 2002 Thomson Publishing 200 Price level (CPI, 1982– 1984 = 100) 150 100 A B 50 AD 1 0 2 4 6 8 AD 2 10 12 Real GDP (trillions of dollars per year) CAUSATION CHAIN Increase in nonprice-level determinants: C, I, G, (X – M) Increase in the aggregate demand curve

CHAPTER 20 EXHIBIT 4 The Keynesian Horizontal Aggregate Supply Curve Tucker, Economics for Today, 3 ed. Copyright © 2002 Thomson Publishing 200 Price level 150 (CPI, 1982– 1984 100 = 100) E 1 E 2 AS 50 AD 2 AD 1 0 2 4 6 8 Full employment 10 12 14 16 Real GDP (trillions of dollars per year) CAUSATION CHAIN Government spending (G ) increases Aggregate demand increases and the economy moves from E 1 to E 2 Price level remains constant, while real GDP and employment rise

CHAPTER 20 EXHIBIT 5 The Classical Vertical Aggregate Supply Curve Tucker, Economics for Today, 3 ed. Copyright © 2002 Thomson Publishing AS Price level (CPI, 1982– 1984 = 100) 200 Surplus 150 E 1 E¢ E 2 100 AD 1 50 Full employment 0 2 4 6 8 10 12 AD 2 14 16 Real GDP (trillions of dollars per year) CAUSATION CHAIN Aggregate demand decreases at full employment and the economy moves from E 1 to E ¢ At E ¢ unemployment and a surplus of unsold goods and services cause cuts in prices and wages The economy moves from E ¢ to E 2, where full employment is restored

CHAPTER 20 EXHIBIT 6 The Three Ranges of the Aggregate Supply Curve AS Tucker, Economics for Today, 3 ed. Copyright © 2002 Thomson Publishing Classical range Price level (CPI, 1982– 1984 = 100) Keynesian range Intermediate range Full employment 0 YK Real GDP (trillions of dollars per year) YF

CHAPTER EXHIBIT 7 The Aggregate Demand Aggregate Supply Model 20 AS 250 Tucker, Economics for Today, 3 ed. Copyright © 2002 Thomson Publishing 200 Price level (CPI, 1982– 1984 150 = 100) 100 E 50 AD Full employment +GDP gap 0 2 4 6 8 10 12 Real GDP (trillions of dollars per year) 14 16

CHAPTER 20 EXHIBIT 8 Effects on Increases in Aggregate Demand (a) Increasing demand in the Keynesian range AS 200 Price level 150 (CPI, 1982– 1984 = 100) 100 E 2 E 1 AD 2 AD 1 50 0 2 4 6 8 Full employment 10 12 14 Real GDP (trillions of dollars per year) Tucker, Economics for Today, 3 ed. Copyright © 2002 Thomson Publishing (b) Increasing demand in the intermediate range AS 200 Price level 150 (CPI, 125 1982– 1984 100 = 100) E 4 E 3 50 AD 4 Full employment AD 3 0 2 4 6 8 10 12 14 Real GDP (trillions of dollars per year) (c) Increasing demand in the classical range AS E 6 200 Price level 150 (CPI, 1982– 1984 = 100) 100 E 5 AD 6 AD 5 50 Full employment 0 2 4 6 8 10 12 Real GDP (trillions of dollars per year) 14

CHAPTER 20 EXHIBIT 9 A Rightward Shift in the Aggregate Supply Curve AS 1 AS 2 300 Tucker, Economics for Today, 3 ed. Copyright © 2002 Thomson Publishing 250 Price level (CPI, 1982– 1984 = 100) 200 E 1 175 E 2 150 100 AD 50 Full employment 0 2 4 6 7 8 10 12 14 Real GDP (trillions of dollars per year) CAUSATION CHAIN Change in one or more nonprice-level determinants: resource prices, technological change, taxes, subsidies, and regulations Increase in the aggregate supply curve 16

CHAPTER 20 EXHIBIT 11 Cost-Push and Demand-Pull Inflation (a) Cost-push inflation Tucker, Economics for Today, 3 ed. Copyright © 2002 Thomson Publishing AS 74 Price level (CPI, 1982– 1984 = 100) 49. 3 (b) Demand-pull inflation AS 73 AS E 2 44. 4 Price level (CPI, 1982– 1984 = 100) E 1 32. 4 E 2 31. 5 E 1 AD 66 AD Full employment 0 Increase in oil prices 4, 099 4, 123 AD 65 Full employment 0 3, 028 3, 227 Real GDP (billions of dollars per year) CAUSATION CHAIN Decrease in the aggregate supply Cost-push inflation Increase in government spending to fight the Vietnam War Increase in the aggregate demand Demand-pull inflation

CHAPTER APPENDIX 20 EXHIBIT A-1 Aggregate Supply Curves (a) Short-run aggregate supply curve 200 (b) Long-run aggregate supply curve LRAS 200 Tucker, Economics for Today, 3 ed. Copyright © 2002 Thomson Publishing SRAS B 150 Price level (CPI, 1982– 1984 100 = 100) A C 50 B 150 A 50 Full employment 0 2 4 6 8 10 12 14 Real GDP (trillions of dollars per year)

CHAPTER APPENDIX 20 EXHIBIT A-2 Self-Correcting AD-AS Model LRAS 200 SRAS Tucker, Economics for Today, 3 ed. Copyright © 2002 Thomson Publishing 150 Price level (CPI, 1982– 1984 100 = 100) E 50 Full AD employment 0 2 4 6 8 10 12 14 16 Real GDP (trillions of dollars per year)

CHAPTER APPENDIX 20 EXHIBIT A-3 Adjustments to an Increase in Aggregate Demand 300 LRAS SRAS 200 250 SRAS 100 Tucker, Economics for Today, 3 ed. Copyright © 2002 Thomson Publishing 200 Price level (CPI, 1982– 1984 = 100) E 4 E 3 150 E 2 100 E 1 AD 2 50 AD 1 Full employment 0 2 4 6 8 10 12 Real GDP (trillions of dollars per year) 14 16

CHAPTER APPENDIX 20 EXHIBIT A-4 Adjustments to a Decrease in Aggregate Demand 300 LRAS SRAS 200 250 SRAS 100 E 1 Tucker, Economics for Today, 3 ed. Copyright © 2002 Thomson Publishing 200 Price level (CPI, 1982– 1984 = 100) E 2 150 E 3 E 4 100 AD 1 50 Full AD 2 employment 0 2 4 6 8 10 12 Real GDP (trillions of dollars per year) 14 16