Chapter 32 Aggregate Demand Aggregate Supply Copyright 2018
- Slides: 26
Chapter 32 Aggregate Demand Aggregate Supply Copyright © 2018 Mc. Graw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of Mc. Graw-Hill Education.
Aggregate Demand • Real GDP desired at each price level • Inverse relationship • Real balances effect • Interest effect • Foreign purchases effect LO 1 Copyright © 2018 Mc. Graw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of Mc. Graw-Hill Education. 32 -2
Price level Aggregate Demand Curve AD 0 Real domestic output, GDP LO 1 Copyright © 2018 Mc. Graw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of Mc. Graw-Hill Education. 32 -3
Changes in Aggregate Demand • Determinants of aggregate demand • Shift factors affecting C, I, G, Xn • 2 components involved • Change in one of the determinants • Multiplier effect LO 2 Copyright © 2018 Mc. Graw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of Mc. Graw-Hill Education. 32 -4
Price level Changes in Aggregate Demand Continued AD 2 0 LO 2 AD 3 AD 1 Real domestic output, GDP Copyright © 2018 Mc. Graw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of Mc. Graw-Hill Education. 32 -5
Consumer Spending • Consumer wealth • Household borrowing • Consumer expectations • Personal taxes LO 2 Copyright © 2018 Mc. Graw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of Mc. Graw-Hill Education. 32 -6
Investment Spending • Real interest rates • Expected returns • Expectations about future business conditions • Technology • Degree of excess capacity • Business taxes LO 2 Copyright © 2018 Mc. Graw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of Mc. Graw-Hill Education. 32 -7
Government Spending • Government spending increases • Aggregate demand increases (as long as interest rates and tax rates do not change) • More transportation projects • Government spending decreases • Aggregate demand decreases • Less military spending LO 2 Copyright © 2018 Mc. Graw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of Mc. Graw-Hill Education. 32 -8
Net Export Spending • National income abroad • Exchange rates • Dollar depreciation • Dollar appreciation LO 2 Copyright © 2018 Mc. Graw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of Mc. Graw-Hill Education. 32 -9
Aggregate Supply • Total real output produced at each price level • Relationship depends on time horizon • Immediate short run • Short run • Long run LO 3 Copyright © 2018 Mc. Graw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of Mc. Graw-Hill Education. 32 -10
Aggregate Supply: Immediate Short Run Price level Immediate-short-run aggregate supply P 1 0 ASISR Qf Real domestic output, GDP LO 3 Copyright © 2018 Mc. Graw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of Mc. Graw-Hill Education. 32 -11
Aggregate Supply: Short Run AS Price level Aggregate supply (short run) 0 Qf Real domestic output, GDP LO 3 Copyright © 2018 Mc. Graw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of Mc. Graw-Hill Education. 32 -12
Aggregate Supply: Long Run Price level ASLR Long-run aggregate supply 0 Qf Real domestic output, GDP LO 3 Copyright © 2018 Mc. Graw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of Mc. Graw-Hill Education. 32 -13
Changes in Aggregate Supply • Determinants of aggregate supply • Shift factors • Collectively position the AS curve • Changes raise or lower per-unit production costs LO 4 Copyright © 2018 Mc. Graw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of Mc. Graw-Hill Education. 32 -14
Changes in Aggregate Supply Continued AS 3 AS 1 Price level AS 2 0 LO 4 Real domestic output, GDP Copyright © 2018 Mc. Graw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of Mc. Graw-Hill Education. 32 -15
Input Prices • Domestic resource prices • Labor • Capital • Land • Prices of imported resources • Imported oil • Exchange rates LO 4 Copyright © 2018 Mc. Graw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of Mc. Graw-Hill Education. 32 -16
Productivity • Real output per unit of input • Increases in productivity reduce costs • Decreases in productivity increase costs Productivity = Per-unit production cost total output total inputs = total input cost total output LO 4 Copyright © 2018 Mc. Graw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of Mc. Graw-Hill Education. 32 -17
Legal-Institutional Environment • Legal changes alter per-unit costs of output • Taxes and subsidies • Extent of government regulation LO 4 Copyright © 2018 Mc. Graw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of Mc. Graw-Hill Education. 32 -18
Price level (index numbers) Equilibrium AS 100 a 92 b Real Output Demanded (Billions) Price Level (Index Number) Real Output Supplied (Billions) $506 108 $513 508 104 512 510 100 512 96 507 514 92 502 AD 0 502 510 514 Real domestic output, GDP (billions of dollars) LO 5 Copyright © 2018 Mc. Graw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of Mc. Graw-Hill Education. 32 -19
Changes in Equilibrium Price level AS P 2 P 1 AD 2 AD 1 0 Qf Q 1 Q 2 Real domestic output, GDP LO 6 Copyright © 2018 Mc. Graw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of Mc. Graw-Hill Education. 32 -20
Decreases in AD: Recession Price level AS P 1 P 2 b a c AD 1 AD 2 0 LO 6 Q 1 Q 2 Qf Real domestic output, GDP Copyright © 2018 Mc. Graw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of Mc. Graw-Hill Education. 32 -21
Decreases in AD: Recession Continued • Prices are downwardly inflexible • Fear of price wars • Menu costs • Wage contracts • Efficiency wages • Minimum wage law LO 6 Copyright © 2018 Mc. Graw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of Mc. Graw-Hill Education. 32 -22
Decreases in AS: Cost-Push Inflation Price level AS 2 P 1 AS 1 b a AD 0 LO 6 Q 1 Qf Real domestic output, GDP Copyright © 2018 Mc. Graw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of Mc. Graw-Hill Education. 32 -23
Increases in AS: Full-Employment AS 1 Price level P 3 P 2 P 1 AS 2 b a c AD 2 AD 1 0 Q 1 Q 2 Q 3 Real domestic output, GDP LO 6 Copyright © 2018 Mc. Graw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of Mc. Graw-Hill Education. 32 -24
Stimulus and the Great Recession • Housing collapse triggers bank failures which leads to recession • Federal Reserve intervenes • Lowers short-term interest rates • Federal Government begins largest peacetime program of spending 32 -25 Copyright © 2018 Mc. Graw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of Mc. Graw-Hill Education.
Stimulus and the Great Recession Continued • GDP growth has been disappointing • High debt load due to low interest rates • High rate of savings • Unequal impact • Price increases rather than output gains 32 -26 Copyright © 2018 Mc. Graw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of Mc. Graw-Hill Education.
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- Matching supply with demand
- Cannot mix aggregate and non-aggregate tableau
- Copyright © 2018
- Copyright © 2018 all rights reserved
- 5 determinants of supply
- Chapter 6 section 1 price supply and demand together
- Chapter 6 demand supply and prices
- Chapter 6 supply demand and government policies
- Que letra continua m v t m j
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- The aggregate real money demand schedule l(r,y)