EC1301_-_Lecture_9_-_Aggregate_Demand_and_Aggregate_Supply

EC1301_-_Lecture_9_-_Aggregate_Demand_and_Aggregate_Supply...

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Unformatted text preview: 1 EC1301 Aggregate Demand and Aggregate Supply Connie CHUNG LECTURE 9 AGGREGATE DEMAND AND AGGREGATE SUPPLY 2 EC1301 Aggregate Demand and Aggregate Supply Connie CHUNG Agenda Sticky Prices and their Macroeconomic Consequences Aggregate Demand (AD) Aggregate Supply (AS) From the Short Run to the Long Run 3 EC1301 Aggregate Demand and Aggregate Supply Connie CHUNG Objectives 1. Explain that a basic set of factors causes real GDP to depart and return to potential GDP over the course of a business cycle 2. Explain the primary factors that determine location of the AD/AS curve 3. Explain the factors that shift the AD/AS curve 4 EC1301 Aggregate Demand and Aggregate Supply Connie CHUNG Key Terms aggregate demand curve aggregate supply curve autonomous consumption consumption function economic fluctuation multiplier long-run aggregate supply curve marginal propensity to consume short-run aggregate supply curve short run in macroeconomics stagflation supply shocks wealth effect 5 EC1301 Aggregate Demand and Aggregate Supply Connie CHUNG Economic Fluctuations Economic fluctuations , also called business cycles , are movements of GDP away from potential output Great Depression (1930s) Insufficient demand for goods and services (identified by John Maynard Keynes ) In the short run when prices dont yet have time to adjust to changes in demand economic coordination problems most pronounced there can be sharp fluctuations in output In the long run when prices have time to fully adjust to changes in demand economy will return to full employment 6 EC1301 Aggregate Demand and Aggregate Supply Connie CHUNG We Would Like to Address the Following Questions 1. How do changes in demand for goods and services affect prices and output in the short run and in the long run ? 2. How can a sharp increase in oil price plunge an economy into a recession ? (current USA, global situation?) 3. Why doesnt the economy always operate at full employment ? 7 EC1301 Aggregate Demand and Aggregate Supply Connie CHUNG Sticky Prices and Their Macroeconomic Consequences Led by Keynes , many economists since his time have focused attention on economic coordination problems The price system does not always work instantaneously if prices are slow to adjust, then the proper signals are not given quickly enough to producers and consumers Demands and supplies will not be brought immediately into...
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This note was uploaded on 03/19/2012 for the course ARTS EC1301 taught by Professor Forgot during the Fall '08 term at National University of Singapore.

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EC1301_-_Lecture_9_-_Aggregate_Demand_and_Aggregate_Supply...

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