PPT-Module Economic Policy and the Aggregate Demand-Aggregate Supply Model

odel KRUGMANS MACROECONOMICS for AP 20 Margaret Ray and David Anderson What you will learn in this Module How the ADAS model is used to formulate macroeconomic policy The rationale for stabilization policy. 29. McGraw-Hill/Irwin. Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.. Aggregate Demand. Real GDP desired at each price level. Inverse relationship. Real balances effect. 12. McGraw-Hill/Irwin. Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.. Aggregate Demand. Real GDP desired at each price level. Inverse relationship. Real balances effect. Stabilization Policies and Their Effects. E. 2. Expansionary Fiscal Policy: Addressing Recessionary Gaps. Suppose a . negative demand shock . has caused a recession. . AD. 2. AD. 1. Aggregate . Price Level. Aggregate Demand. Aggregate Demand slopes downward like other demand curves, but for different reasons.. Aggregate Demand. An increase in the aggregate price level will cause real spending to decrease. This is seen as a movement upward along a given AD curve. Shane Murphy. www.lancaster.ac.uk/postgrad/murphys4/econ15. s.murphy5@lancaster.ac.uk. Today’s Outline. Week 24 worksheet – Money . & Inflation. Question 1. ISLM analysis (with r and Y on respective axes) is based upon the assumption that prices (P) remained unchanged as the money supply is increased. When that assumption is relaxed, the aggregate demand curve (with P and Y on respective axes) appears. Where the money supply is constant at M1, explain (in no more than 50 words) the representation of the different magnitude of the general level of prices (P1 . Today:. Aggregate demand. Why is it downward sloping?. Factors that affect the aggregate demand. Aggregate supply. Long-run aggregate supply. Short-run aggregate supply. Why is it upward sloping?. Factors that affect the short-run aggregate supply. Derive AS/AD model . Understand cause & consequences of change in AS/AD. Short run vs Long run. Effects on economic growth, prices, unemployment.. Different schools of thought in macroeconomics. Macroeconomic Long Run and Short Run. Aggregate Supply. Learning Objectives. Define the aggregate demand curve. Explain why it slopes downward. Explain why it shifts. Define the aggregate supply curve. Explain why it slopes downward. Explain why it shifts. Essential Question:. What are demand and supply, and what factors influence them?. Demand and price. Demand comes at a price. . Burger. . . Quantity. demanded . – amount of a good/service consumers are willing to pay . The quantity of a specific product that a buyer is . able. . and . willing. to buy at a certain price. Usually at a particular . time. and . place. Remember those . time and place utilities . that add value to a product??. Introduction & Determinants. Aggregate Demand Curve . (Inverse) Relationship between price level & quantity of aggregate output demanded for the economy as a whole. Aggregate Price Level (measured with GDP deflator). . Adam . smith, credited by many as the founder of classical economics believed the government should intervene in economic affairs as little as possible. John Maynard Keynes asked, “If supply creates its own demand, why are we having a worldwide depression?”. Demand and Supply are . most fundamental concepts of economics and it is the backbone of a market . economy.  . Demand . refers to how much (quantity) of a product or service is desired by buyers. . AD - The Model. PL. RGDP. AD. PL = Price Level. ALL prices in the economy. Real Gross Domestic Product = Dollar value of ALL domestically produced final goods and services adjusted for inflation. AD = Aggregate demand. The total amount of goods and services people will purchase at ALL price levels. Has the same components as GDP..