Chapter 9 - Aggregate demand and aggregate supply. After studying this chapter you will be able to understand: Why the aggregate demand curve is downward sloping, and what factors shift the entire curve; what determines the shape of the short run aggregate supply curve, and what factors shift the entire curve; how the equilibrium price level and real GDP are determined; the distinction between the short-run and long-run supply curve; the nature and causes of recessionary and inflationary gaps.
Trang 1Chapter 9
Aggregate Demand
and Aggregate Supply
SLIDES PREPARED BY JUDITH SKUCE, GEORGIAN COLLEGE
Trang 2In this chapter you will learn
Why the aggregate demand curve is
downward sloping, and what factors
shift the entire curve
What determines the shape of the short
run aggregate supply curve, and what
factors shift the entire curve
How the equilibrium price level and real
Trang 3In this chapter you will learn
The distinction between the short-run
and long-run supply curve
The nature and causes of recessionary
and inflationary gaps
Trang 4Chapter 9 Topics
Aggregate Demand
Aggregate Supply: The Short Run
Equilibrium: Real Output & the Price
Level
Short-Run & Long-Run Aggregate
Supply
Equilibrium vs Full-Employment GDP
Trang 5The amounts of real output that
buyers collectively desire to
purchase at each possible price level
Aggregate Demand (AD):
AD = C + I g + G + X n
Trang 6Aggregate Demand (AD)
Aggregate Quantity Demanded (Real
GDP) and the Price Level are inversely
Trang 7is downsloping because of the
following effects of a change in price
Trang 10CHANGES IN AGGREGATE DEMAND
Trang 12Consumer Spending
Consumer wealth Consumer expectations Household indebtedness Taxes
Determinants of Aggregate Demand
Trang 14Government Spending
Net Export Spending
National Income Abroad Exchange Rates
Determinants of Aggregate Demand
Trang 15Chapter 9 Topics
Aggregate Demand
Aggregate Supply: The Short Run
Equilibrium: Real Output & the Price
Level
Short-Run & Long-Run Aggregate
Supply
Equilibrium vs Full-Employment GDP
Trang 16The level of real domestic output
that will be produced at each
price level, given fixed input prices
Aggregate Supply (Short Run):
Trang 17.has three ranges:
1 - Horizontal Range
2 - Vertical Range
3 - Intermediate (Upsloping) Range
Aggregate Supply (Short Run)
Trang 18Horizontal Range
Upsloping or Intermediate
Range
Figure 9 - 5
Trang 19Real domestic output, GDP
Figure 9 - 6
Trang 20Figure 9 - 6
Trang 21Real domestic output, GDP
Figure 9 - 6
Trang 22Figure 9 - 6
Trang 23Prices of Imported Resources Market Power
Trang 25Chapter 9 Topics
Aggregate Demand
Aggregate Supply: The Short Run
Equilibrium: Real Output & the Price
Level
Short-Run & Long-Run Aggregate
Supply
Equilibrium vs Full-Employment GDP
Trang 26EQUILIBRIUM GDP
Price Level occur where AD =AS
AD>AS, putting upward pressure
on prices across the economy
Trang 27PL 1
Figure 9 - 7
Trang 28EQUILIBRIUM GDP
• similarly, a price level too high
would mean AD<AS, putting
downward pressure on prices
across the economy
Trang 30Changes in Equilibrium
Are caused by changes (shifts) in
AD and/or AS
The effects on real GDP and the
price level depend on the AS range
Trang 31The Multiplier with Price Level Changes
we will examine three equal horizontal shifts in AD
from this starting point
we will examine three equal horizontal shifts in AD
Price Level
Trang 34GDP is unchanged when AD shifts
Trang 35The Multiplier with Price Level Changes
Price Level increases will reduce the
multiplier effect on equilibrium GDP (the AD
shift remains the same)
The largest GDP multiplier effect will occur in
the horizontal range of AS
In the vertical range of AS, the GDP multiplier
is zero
Trang 36Chapter 9 Topics
Aggregate Demand
Aggregate Supply: The Short Run
Equilibrium: Real Output & the Price
Level
Short-Run & Long-Run Aggregate
Supply
Equilibrium vs Full-Employment GDP
Trang 37Aggregate Supply Revisited
Short Run: Period while input prices
remain fixed as the price level changes
(particularly nominal wages)
Long Run: Period long enough for input
prices (wages) to be fully responsive to
changes in the price level
We have assumed the short run up to
this point
We have assumed the short run up to
this point
Trang 38AD1
Trang 39AD1 AD2
PL2
Q2 Real GDP
Trang 40AD1
Trang 42Long Run Aggregate Supply
at this point, real wages
Trang 43lower price level and
lower output
AD1
AD3
Real GDP
Trang 44EVENTUALLY leads to lower nominal wages which causes
AD3
PL4
Trang 45AS curve
PL5
AS3
Real GDP
Trang 46Long Run Aggregate Supply
at this point, real wages have
fallen to former real levels
in the long run, output is
restored to Q f
but the price level is lower
this process can take a long time
Trang 47Long Run Aggregate Supply
by tracing a line between the
long-run equilibrium points, we
obtain the long-run aggregate
supply curve
illustrated…
Trang 48Start with
full employment
Trang 49price level
Increase in
AD leads to higher output &
price level
Q2 Real GDP
Trang 50Eventually, wages & input prices are bid
up
Trang 51above Qf
in the long run
Economy cannot remain
above Qf
in the long run
Q2 Real GDP
Trang 53price level
Decrease in
AD leads to lower output &
price level
Real GDP
Trang 56Long run aggregate supply
curve is vertical at the full employment level
Trang 58Chapter 9 Topics
Aggregate Demand
Aggregate Supply: The Short Run
Equilibrium: Real Output & the Price
Level
Short-Run & Long-Run Aggregate
Supply
Equilibrium vs Full-Employment GDP
Trang 59Equilibrium GDP
There is no guarantee, in the short
run, that equilibrium GDP will be
full-employment GDP
Trang 60Recessionary Gap
A recessionary gap occurs when
AD is too low, and equilibrium GDP
is below potential GDP
Trang 61Potential GDP
Figure 9 - 10
P0
P1
Trang 62Inflationary Gap
An inflationary gap occurs when AD
is too high, and equilibrium GDP is
above potential GDP
Trang 63Inflationary Gap = 20
Figure 9 - 10
P0
P1
Real GDP
Trang 64Chapter 9 Topics
Aggregate Demand
Aggregate Supply: The Short Run
Equilibrium: Real Output & the Price
Level
Short-Run & Long-Run Aggregate
Supply
Equilibrium vs Full-Employment GDP
Trang 65Chapter 9 Appendix
Aggregate Demand
and Aggregate Supply
SLIDES PREPARED BY JUDITH SKUCE, GEORGIAN COLLEGE
Trang 66Derivation of AD Curve
AD can be derived from the
Aggregate Expenditures Model
illustrated…
Trang 67Figure A9 - 1
Real GDP
Real GDP
What if prices go
up?
Trang 68up again?
What if prices go
up again?
Figure A9 - 1
Trang 69at price level 3
Trang 70Figure A9 - 1
Trang 71Shifts in AD
and shifts in Aggregate Expenditure
illustrated…