# macroeconomics-lesson-5 compress.pdf - U N IT 3 M acr...

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Advanced Placement Economics Teacher Resource Manual© National Council on Economic Education, New York, N.Y.479Introduction and DescriptionIn this lesson, the focus is on the short-run equilib-rium between aggregate supply and demand, onthe changes in output and price level if aggregatesupply or aggregate demand changes, and on thestudents’ability to explain correctly why the curveshifted in a specific direction. The relationshipbetween the simple Keynesian model and the aggre-gate supply-aggregate demand model is explored.Activity 25 provides the students with practice atmanipulating the aggregate demand and aggregatesupply model and interpreting the effects on theprice level and real GDP. Students who performwell on this activity have an excellent foundationfor the rest of the course. Activity 26 relates the Key-nesian simple model and the AD and AS model.1.Project Visual 3.11 and focus on the top graph.Short-run macroeconomic equilibrium occurswhen real GDP demanded equals real GDP sup-plied. This is Point A in the graph, or the level ofoutput Y.If the price level (P1) is above the equilibrium,then the aggregate supply (Y2) is greater than theaggregate demand (Y1). Firms experience anaccumulation of inventory; they cut productionand employment; output decreases toward theequilibrium level. Have the students tell a compa-rable story if the price level is below equilibrium.2.Explain that the long-run macroeconomic equi-librium occurs at point B in the lower graph ofVisual 3.11.Objectives1.Explain the macroeconomic equilibrium.2.Explain what happens to the equilibrium pricelevel and quantity with a change in aggregatedemand.3.Explain what happens to the equilibrium pricelevel and quantity with a change in aggregatesupply.4.Explain what happens to the equilibrium pricelevel and quantity with a change in aggregatedemand and aggregate supply.5.Explain the relationship between the simpleKeynesian model and the AD and AS model.6.Distinguish among equilibrium below, aboveand at full employment.Time RequiredTwo class periods or 90 minutesMaterials1.Activities 25 and 262.Visuals 3.11 and 3.12Procedure1.Project Visual 3.11 and focus on the top graph.Short-run macroeconomic equilibrium occurswhen real GDP demanded equals real GDP sup-plied. This is Point A in the graph, or the level ofoutput Y.If the price level (P1) is above the equilibrium,then the aggregate supply (Y2) is greater than theaggregate demand (Y1). Firms experience anaccumulation of inventory; they cut productionand employment; output decreases toward theequilibrium level. Have the students tell a compa-rable story if the price level is below equilibrium.2.Explain that the long-run macroeconomic equi-librium occurs at point B in the lower graph ofVisual 3.11.

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Term
Winter
Professor
Possen
Tags
National Council on Economic Education