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6. How do we find national equilibrium?

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Aggregate Demand, Aggregate Supply

Text of 6. How do we find national equilibrium?

  • 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?
Interestrate 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
16. HOW TO SHIFT THE SRAS

  • INPUT PRICES or COSTS such as WAGES

17. ECONOMIC GROWTH 18. GOVERNMENT REGULATION