Aggregate Demand, Aggregate Supply

1. How can we analyze economic fluctuations? Aggregate Demand and Aggregate Supply

2. The History of Recessions in the US

3. Aggregate Demand REAL GDP AND PRICE LEVELS Aggregate demand curve shows the relationship between: Aggregate spending on domestic output (X AXIS) Average price levels (Y AXIS)

4. What does this look like?

5. Why is it downward sloping? Foreign Sector Substitution effect: If prices rise domestically Look internationally If prices fall domestically Buy more domestically

6. Why is it downward sloping? Interest rate effect: If prices rise  Need to borrow more Interest rates rise I falls C falls If prices fall  Need to borrow less Interest rates fall I increases C increases

7. Why is it downward sloping? The Wealth effect: If price rises  The purchasing power falls The quantity of domestic output demanded falls

8. SHIFTs IN THE AD Consumption will… Investment will…

9. AD SHIFTS: G and NX (X-M) Government spending will Net Exports

10. Representations of Shifts in the AD Increase of AD (right) Decrease in AD (left)

11. Governmental Policies Taxes Can increase or decrease C and I Government Spending Increase G Increase Money More C and More I Decrease Money Less C and Less I Fiscal Policy Monetary Policy

12. Presentation Guidelines 1. Establish roles: (see back board) 2 min. 2. Read your excerpt and fill in WS. 5 min. 3. Find another credible source for info. 5 min. 4.Create your presentation of information and include: 15 min. Description of your concept (50 points) Graphs or image of your concept (20 points) Jingle, rap, acronym, or dance to remember your concept (20 points) Creativity (10 points)

13. Aggregate Supply PL And Real GDP Shows the relationship between average price level and the domestic output produced

14. SHORT RUN VS. LONG RUN Input $ do not adjust to changes in the PL Keynesian school Input $ are flexible and adjust to changes in PL Classical school SHORT RUN: PD. OF TIME WITH STICKY PRICES (COSTS) AND WAGES LONG RUN: PD. OF TIME WHEN PRICES (COSTS) AND WAGES ARE FLEXIBLE

15. Short-Run Aggregate Supply (SRAS) INPUT COSTS ARE STUCK AT A PRE-DETERMINED LEVEL As prices increase  Firms produce more for a greater profit As prices decrease sales will fall, and producers produce less PL SRAS GDPR

17. ECONOMIC GROWTH

19. Long-Run Aggregate Supply (LRAS) PL LRAS GDPR Yf

20. HOW TO SHIFT THE LRAS LIKE THE PPF In the Long run, we are operating at Full Potential so… CHANGE IN TECHNOLOGY CHANGE IN LABOR PRODUCTIVITY CHANGE IN CAPITAL

21. THE DIFFERENT MODELS… http://apecon.us/aggregatesupplykeynesianclassical2.swf