ch12(4slides)

ch12(4slides) - 2009-10-71Aggregate Demand andAggregate...

Info iconThis preview shows pages 1–5. Sign up to view the full content.

View Full Document Right Arrow Icon

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

View Full DocumentRight Arrow Icon

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

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: 2009-10-71Aggregate Demand andAggregate Supply Analysis1LearningObjective 12.1Aggregate demand and aggregate supply modelA model that explains short-run fluctuations in real GDP and the price level.fluctuations in real GDP and the price level.FIGURE 12.1Aggregate Demand and Aggregate Supply22009-10-72LearningObjective 12.1First, let’s focus on the static version.Aggregate demand curveA curve that shows the relationship between the price level and the quantity of real GDP demanded by households, firms, and the government.Short-run aggregate supply curve A curve that shows the relationship in the short run between the price level and the quantity of real GDP supplied by firms.3LearningObjective 12.1GDP has four components: consumption (C), investment (I), government purchases (G), and netWhy Is the Aggregate Demand Curve Downward Sloping?exports (NX). If we let Ystand for GDP, we can write the following: Y = C + I + G + NXThe Wealth Effect: How a Change in the Price Level Affects ConsumptionThe impact of the price level on consumption is called the wealth effect.42009-10-73LearningObjective 12.1Why Is the Aggregate Demand Curve Downward Sloping?The Interest-Rate Effect: How a Change in the Price Level Affects InvestmentThe impact of the price level on investment is known as the interest-rate effect.The International-Trade Effect: How a Change in the Price Level Affects Net ExportsThe impact of the price level on net exports is known as the international-trade effect.5LearningObjective 12.1An important point to remember is that theShifts of the Aggregate Demand Curve versusMovements Along ItAn important point to remember is that the aggregate demand curve tells us the relationship between the price level and the quantity of real GDP demanded, holding everything else constant.62009-10-74LearningObjective 12.1The Variables That Shift the Aggregate Demand CurveThe variables that cause the aggregate • Changes in government policies• Changes in the expectations of households and firmsdemand curve to shift fall into three categories:• Changes in foreign variables7LearningObjective 12.1The Variables That Shift the Aggregate Demand CurveChanges in Government PoliciesMonetary policyThe actions the Federal Reserve takes to manage the money supply and interest rates to pursue macroeconomic policy objectives.Fiscal policyChanges in federal taxes and purchases that are intended toand purchases that are intended to achieve macroeconomic policy objectives, such as high employment, price stability, and high rates of economic growth....
View Full Document

This note was uploaded on 02/22/2010 for the course FBE ECON1002 taught by Professor Rao during the Spring '10 term at HKU.

Page1 / 18

ch12(4slides) - 2009-10-71Aggregate Demand andAggregate...

This preview shows document pages 1 - 5. Sign up to view the full document.

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