CHAPTER 11 - CHAPTER 11 Aggregate Demand and Supply...

Info iconThis preview shows pages 1–9. Sign up to view the full content.

View Full Document Right Arrow Icon
CHAPTER 11 Aggregate Demand and Supply
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
How does an economy perform? What determines changes in the level of output, unemployment, and the price level? Simple model to answer those questions: model of aggregate demand (AD) and aggregate supply (AS)
Background image of page 2
Aggregate Demand (AD) AD = total quantity demanded by all sectors in the economy at various price levels AD = C+I+G+NX Note: demand curve is NOT the same as aggregate demand curve (AD curve = relationship between price level and total quantity of real output)
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Aggregate Demand (AD)
Background image of page 4
Aggregate Demand (AD) Downward slope Reasons for downward slope: Real balance effect Interest rate effect International trade effect
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Aggregate Demand (AD) Real Balance Effect Increase in price level lower purchasing power of financial assets with given money value (savings,. ..) people tend to demand Real balance effect : increase in aggregate output demanded that is caused by increases in the real value of financial assets when prices fall
Background image of page 6
Aggregate Demand (AD) Interest Rate Effect Changes in the price level also affect the interest rate Interest rate: price of money determined by demand and supply of money If prices fall businesses need less money to carry out their daily transactions less demand for money interest rate falls Falling interest rates stimulate investment and certain types of consumer spending Interest rate effect : changes in the aggregate output demanded resulting from changes in the interest rate that are caused by price level changes
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Aggregate Demand (AD) The International Trade Effect Effect of price changes on imports and exports (imports = purchased from abroad, exports = domestically produced, sold abroad) Price level in increase in US US products become less attractive in price than foreign products imports increase Also: US products become less attractive in price to
Background image of page 8
Image of page 9
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 04/29/2008 for the course ECON 101 taught by Professor Fels during the Spring '08 term at Wisconsin Milwaukee.

Page1 / 35

CHAPTER 11 - CHAPTER 11 Aggregate Demand and Supply...

This preview shows document pages 1 - 9. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online