Aggregate Demand and Aggregate Supply - Powerpoint | ECO 2013, Study notes of Introduction to Macroeconomics

Download Aggregate Demand and Aggregate Supply - Powerpoint | ECO 2013 and more Study notes Introduction to Macroeconomics in PDF only on Docsity! Dr. Bosshardt -- Chapter 9 Chapter 9: Aggregate Demand and Aggregate Supply Model of the Macroeconomy  Flexible price model  Keynesian model (prices fixed)  Relates three things:  Price Level  Real GDP  Unemployment (indirectly) Dr. Bosshardt -- Chapter 9 Dr. Bosshardt -- Chapter 9 AD is negatively sloped:  Wealth effect  Real wealth  Impact on exports  Substitute between domestic and foreign goods  Interest Rate effects  Prices increase => interest rates increase => investment Dr. Bosshardt -- Chapter 9 What shifts AD? Think: What changes C or I or G or X – M? That is, expenditures… Dr. Bosshardt -- Chapter 9 What shifts AD? (continued)  Consumer spending  Wealth  Consumer expectations  Household debt  Taxes Sequester Dr. Bosshardt -- Chapter 9 Dr. Bosshardt -- Chapter 9 Long Run vs. Short Run  Want to know:  Price Level  Real GDP => Employment  Long Run vs. Short Run  Long Run: Resource (money or nominal) prices have had time to adjust to equilibrium  Short Run: Resource (money or nominal) prices have not had time to adjust to equilibrium (usually tell story of labor wages being fixed) Dr. Bosshardt -- Chapter 9 Long-Run Aggregate Supply:  Aggregate Supply:=> Relationship between price level and quantity of real GDP supplied  Price level measured by GDP deflator, but may just say CPI.  Long-Run Aggregate Supply is vertical: Why?  Price level does not impact real GDP.  Long Run => resource prices have adjusted => full employment => natural rate of unemployment