Aggregate Demand, Aggregate Supply, and Inflation -...
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Aggregate Demand, Aggregate Supply, and Inflation Econ 202 Lecture 2 Petar Stankov [email protected] 6 Oct. 2009 P. Stankov (CERGE-EI) Lecture 2 6 Oct. 2009 1 / 12
Transcript of Aggregate Demand, Aggregate Supply, and Inflation -...
Aggregate Demand, Aggregate Supply, and InflationEcon 202 Lecture 2
Petar Stankov
6 Oct. 2009
P. Stankov (CERGE-EI) Lecture 2 6 Oct. 2009 1 / 12
Outline
1 Aggregate Demand and Aggregate Supply
2 Macroeconomic equilibrium
3 Inflation and Hyperinflation
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Motivation
Figure: The Real GDP trend in the US economy since 1990
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The Aggregate Demand (AD)
Who demands goods and services?1 households (C)2 firms (I)3 the government (G)4 RoWorld (NX)
Figure: The AD curve
P. Stankov (CERGE-EI) Lecture 2 6 Oct. 2009 4 / 12
The Aggregate Supply (AS)
Who supplies goods and services?1 households provide labor2 firms produce3 the government produces4 RoWorld exports to us
Figure: The AS curve
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Macroeconomic equilibrium
Aggregate demandTotal demand for goods andservices in the economy.
Aggregate supplyTotal supply for goods andservices in the economy.
Figure: The AD and AS curves, and macroequilibrium
What causes macroeconomic fluctuations?
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Macroeconomic cycles
ExpansionA period in which GDP risesdue to an increase in AD orAS, or both.
ContractionA period in which GDP fallsdue to a decrease in AD orAS, or both.
RecessionA state of the economy inwhich GDP contracts.
Figure: The macroeconomic cycle
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Factors shifting AD
Figure: Factors shifting the AD curve
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Factors shifting AS
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When do policymakers make mistakes?
Comments:It is useful to stimulate the AD when the economy is in recession.Before AS has reached its capacity, stop stimulating the economy, andstart worrying about inflation.
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When do policymakers make mistakes?
Comments:It is useful to stimulate the AD when the economy is in recession.Before AS has reached its capacity, stop stimulating the economy, andstart worrying about inflation.
P. Stankov (CERGE-EI) Lecture 2 6 Oct. 2009 10 / 12
Inflation
InflationAn overall increase in theprice level in a given economyin a given year.
Cost-push inflationInflation caused by anincrease in firm costs.
Demand-pull inflationInflation caused by anincrease in AD.
P. Stankov (CERGE-EI) Lecture 2 6 Oct. 2009 11 / 12
Inflation
HyperinflationA period of a very rapid seriesof price level jumps.
Factors causinghyperinflation:
large G deficits coveredwith increased moneysupplysustained high moneygrowth over a longperiod of time
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