16%20The%20Aggregate%20Demand%20and%20Supply%20Model,%20Part%201

16%20The%20Aggregate%20Demand%20and%20Supply%20Model,%20Part%201

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Unformatted text preview: 1 16-1 The Aggregate Demand and Supply Model, Part 1 16-2 Agenda 1. The Aggregate Demand and Supply Curves 2. General Equilibrium in the AD / AS Analysis 3. Disequilibrium Dynamics a. Aggregate Demand Shocks b. Aggregate Supply Shocks 16-3 The Aggregate Demand Curve The aggregate demand curve, AD, is the inverse relationship between: 1. Inflation , and 2. Economic output when the goods market is in equilibrium. 16-4 The Aggregate Demand Curve The AD curve is downward sloping because a rise in inflation causes: 1. The monetary authorities to increase real interest rates to control inflation, which 2. Reduces planned expenditures, and 3. Reduces the equilibrium level of output. 2 16-5 The Aggregate Demand Curve Y 16-6 The Aggregate Demand Curve The AD curve will shift whenever there is: 1. A change in autonomous consumption, 2. A change in autonomous investment, 3. A change in autonomous government purchases, 4. A change in autonomous taxes, 16-7 The Aggregate Demand Curve The AD curve will shift whenever there is: 5. A change in autonomous net exports, or 6. A change in autonomous monetary policy....
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16%20The%20Aggregate%20Demand%20and%20Supply%20Model,%20Part%201

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