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Lecture%203 - Lecture 3- Chapter 9 Aggregate Demand and...

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Lecture 3 Semester 2 2010 htay 1 Lecture 3- Chapter 9 Aggregate Demand and Aggregate Supply Analysis
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Lecture 3 Semester 2 2010 htay 2 Learning Objectives Discuss the determinants of aggregate demand and distinguish between a movement along the aggregate demand curve and a shift of the curve. Discuss the determinants of aggregate supply, and distinguish between a movement along and a shift of the curve. Use the aggregate demand and aggregate supply model to illustrate the difference between short- run and long-run equilibrium. Use the dynamic aggregate demand and aggregate supply model to analyse macroeconomic conditions.
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Lecture 3 Semester 2 2010 htay 3 The economic boom impacts on Canon Canon was able to grow rapidly during the economic boom experienced in Australia from 1992 onwards .
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Lecture 3 Semester 2 2010 htay 4 The aggregate demand and aggregate supply model is a model that explains short-run fluctuations in real GDP and the price level. The aggregate demand curve (AD), is a downward sloping curve which shows the relationship between the price level and the quantity of real GDP demanded by households, firms and the government. Aggregate Demand
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Lecture 3 Semester 2 2010 htay 5 Aggregate Demand Aggregate Demand Fundamentals The quantity of real GDP demanded, ( Y) , is the total amount of final goods and services produced in Australia that people (C), businesses (I), governments (G), and foreigners (NX) plan to buy. This quantity is the sum of consumption expenditures, C , investment, I , government purchases, G , and net exports, X M . That is: Y = C + I + G + X M .
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Lecture 3 Semester 2 2010 htay 6 Aggregate Demand The Aggregate Demand Curve Aggregate demand is the relationship between the quantity of real GDP demanded and the price level. The aggregate demand ( AD ) curve plots the quantity of real GDP demanded against the price level.
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Lecture 3 Semester 2 2010 htay 7 85 115 135 95 105 125 AD e ' d' c' b' a' Decrease in quantity of real GDP demanded. Increase in quantity of real GDP demanded. 0 Aggregate Demand Curve Real GDP (billions of 2003/04 dollars) 860 900 940 880 920 960 Price level (GDP deflator, 2003/04 = 100)
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Lecture 3 Semester 2 2010 htay 8 The aggregate demand curve slopes downwards for three reasons: 1. The wealth effect 2. The interest rate effect 3. The international-trade effect Aggregate Demand Substitution effect
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Lecture 3 Semester 2 2010 htay 9 Aggregate Demand Aggregate Demand Curve The AD curve slopes downward for two reasons: Wealth effect -Changes in the price level, with other things remaining the same, change real wealth. People try to restore wealth by increasing saving and decreasing consumption. Substitution effect- People substitute future consumption for present consumption as a result of higher interest rates which is called the intertemporal substitution effect.
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This note was uploaded on 03/23/2011 for the course ECON 200 taught by Professor 1212 during the Three '11 term at Curtin.

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Lecture%203 - Lecture 3- Chapter 9 Aggregate Demand and...

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