Chapter 30
description
Transcript of Chapter 30
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Aggregate Demand
and Aggregate Supply
Chapter 30
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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30-2
Aggregate Demand
Real GDP desired at each price level
Inverse relationship
Real balances effect
Interest effect
Foreign purchases effect
LO1
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30-3
Aggregate Demand
Real domestic output, GDP
Pri
ce
le
ve
l
AD
0
LO1
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30-4
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
LO2
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30-5
Changes in Aggregate Demand
Real domestic output, GDP
Pri
ce level
AD1AD3
AD2
0
LO2
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30-6
Consumer Spending
Consumer wealth
Household borrowing
Consumer expectations
Personal taxes
LO2
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30-7
Investment Spending
Real interest rates
Expected returns
Expectations about future business conditions
Technology
Degree of excess capacity
Business taxes
LO2
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30-8
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
LO2
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30-9
Net Export Spending
National income abroad
Exchange rates
Dollar depreciation
Dollar appreciation
LO2
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30-10
Aggregate Supply
Total real output produced at each price level
Relationship depends on time horizon
Immediate short run
Short run
Long run
LO3
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30-11
AS: Immediate Short Run
Real domestic output, GDP
Pri
ce level
ASISR
Qf
Immediate-short-run
aggregate supply
P1
0
LO3
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30-12
Aggregate Supply: Short Run
Real domestic output, GDP
Pri
ce level
0Qf
AS
Aggregate supply
(short run)
LO3
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30-13
Aggregate Supply: Long Run
Real domestic output, GDP
Pri
ce level
ASLR
Qf0
Long-run
aggregate
supply
LO3
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30-14
Changes in Aggregate Supply
Determinants of aggregate supply
Shift factors
Collectively position the AS curve
Changes raise or lower per-unit production costs
LO4
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30-15
Changes in Aggregate Supply
Real domestic output, GDP
Pri
ce level
AS1AS3
AS2
0
LO4
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30-16
Input Prices
Domestic resource prices
Labor
Capital
Land
Prices of imported resources
Imported oil
Exchange rates
LO4
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30-17
Productivity
Real output per unit of input
Increases in productivity reduce costs
Decreases in productivity increase costs
Per-unit production cost =total input cost
total output
Productivity =total output
total inputs
LO4
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30-18
Legal-Institutional Environment
Legal changes alter per-unit costs of output
Taxes and subsidies
Extent of government regulation
LO4
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30-19
Equilibrium
Real domestic output, GDP(billions of dollars)
Pri
ce level
(in
dex n
um
bers
)
100
92
502 510 514
ab
AD
AS
Real OutputDemanded
(Billions)Price Level
(Index Number)
Real OutputSupplied(Billions)
$506 108 $513
508 104 512
510 100 510
512 96 507
514 92 502
0
LO5
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30-20
Changes in Equilibrium
Real domestic output, GDP
Pri
ce level
AD1
AS
P1
P2
Q2Q1Qf
AD2
0
LO6
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30-21
Decreases in AD: Recession
Real domestic output, GDP
Pri
ce level
AD1
AS
P1
P2
Q1 Q2 Qf
AD2
c
ab
0
LO6
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30-22
Decreases in AD: Recession
Prices are downwardly inflexible
Fear of price wars
Menu costs
Wage contracts
Efficiency wages
Minimum wage law
LO6
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30-23
Decreases in AS: Cost-Push Inflation
Real domestic output, GDP
Pri
ce level
AD
AS1
P1
P2
Q1 Qf
AS2
a
b
0
LO6
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30-24
Increases in AS: Full-Employment
Real domestic output, GDP
Pri
ce level
AD1
AS2
P1
P2
Q2Q1
AS1
b
AD2
c
P3
Q3
a
0
LO6
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30-25
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
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30-26
Stimulus and the Great Recession
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