Documenti di Didattica
Documenti di Professioni
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Economics,
Arab World Edition
R. Glenn Hubbard, Anthony Patrick OBrien,
Ashraf Eid, Amany El Anshasy,
Chapter 20
Aggregate Demand and Aggregate
Supply Analysis
Aggregate Demand
Chapter 20: Aggregate Demand and Aggregate Supply Analysis
FIGURE 20.1
Aggregate Demand and
Aggregate Supply
P
The price
level
SRAS
Short-
The model P1 Run
determines Aggregate
the eqm price Aggregate Supply
level Demand AD
and eqm Y
Y1
output
(real GDP). Real GDP, the
quantity of
output
The Aggregate-Demand (AD) Curve
Chapter 20: Aggregate Demand and Aggregate Supply Analysis
P
The AD curve
shows the P2
quantity of
all g&s
demanded
P1
in the economy
at any given AD
price level.
Y
Y2 Y1
Learning Objective 20.1
Aggregate Demand
Chapter 20: Aggregate Demand and Aggregate Supply Analysis
Aggregate Demand
Chapter 20: Aggregate Demand and Aggregate Supply Analysis
Y = C + I + G + NX
Aggregate Demand
Chapter 20: Aggregate Demand and Aggregate Supply Analysis
Suppose P rises.
The dollars people hold buy fewer g&s,
so real wealth is lower.
People feel poorer.
Result: C falls.
The Interest-Rate Effect (P and I )
Chapter 20: Aggregate Demand and Aggregate Supply Analysis
Suppose P rises.
Buying g&s requires more dollars.
To get these dollars, people sell bonds or other assets.
This drives up interest rates.
Result: I falls.
(Recall, I depends negatively on interest rates.)
The Exchange-Rate Effect (P and NX )
Chapter 20: Aggregate Demand and Aggregate Supply Analysis
Suppose P rises.
U.S. interest rates rise (the interest-rate effect).
Foreign investors desire more U.S. bonds.
Higher demand for $ in foreign exchange market.
U.S. exchange rate appreciates.
U.S. exports more expensive to people abroad, imports
cheaper to U.S. residents.
Result: NX falls.
The Slope of the AD Curve: Summary
Chapter 20: Aggregate Demand and Aggregate Supply Analysis
An increase in P P
reduces the quantity
of g&s demanded
P2
because:
the wealth effect
(C falls)
P1
the interest-rate
AD
effect (I falls)
the exchange-rate Y
effect (NX falls) Y2 Y1
Learning Objective 20.1
Aggregate Demand
Chapter 20: Aggregate Demand and Aggregate Supply Analysis
Aggregate Demand
Chapter 20: Aggregate Demand and Aggregate Supply Analysis
Aggregate Demand
Chapter 20: Aggregate Demand and Aggregate Supply Analysis
Aggregate Demand
Chapter 20: Aggregate Demand and Aggregate Supply Analysis
Making
In a Global Economy, How Can You Tell
the
Chapter 20: Aggregate Demand and Aggregate Supply Analysis
Aggregate Demand
Chapter 20: Aggregate Demand and Aggregate Supply Analysis
Table 20-1
Variables That Shift the Aggregate Demand Curve
Aggregate Demand
Chapter 20: Aggregate Demand and Aggregate Supply Analysis
AS is:
upward-sloping
in short run
vertical in Y
long run
The Long-Run Aggregate-Supply Curve (LRAS)
Chapter 20: Aggregate Demand and Aggregate Supply Analysis
P LRAS1 LRAS2
Any event that
changes any of the
determinants of YN
will shift LRAS.
Example:
Immigration
increases L,
causing YN to rise.
Y
YN YN
Why the LRAS Curve Might Shift
Chapter 20: Aggregate Demand and Aggregate Supply Analysis
LRAS2010
Over the long run, P LRAS2000
tech. progress shifts LRAS1990
LRAS to the right
P LRAS
If AS is vertical,
fluctuations in AD Phi
SRAS
do not cause Phi
fluctuations in output
or employment.
ADhi
If AS slopes up, Plo
then shifts in AD AD1
Plo
do affect output ADlo
Y
and employment. Ylo Y1 Yhi
Three Theories of SRAS
Chapter 20: Aggregate Demand and Aggregate Supply Analysis
In each,
Imperfection:
Nominal wages are sticky in the short run,
they adjust sluggishly.
Due to labor contracts, social norms
Firms and workers set the nominal wage in advance based on
PE, the price level they expect to prevail.
1. The Sticky-Wage Theory
Chapter 20: Aggregate Demand and Aggregate Supply Analysis
If P > PE,
revenue is higher, but labor cost is not.
Production is more profitable,
so firms increase output and employment.
Hence, higher P causes higher Y,
so the SRAS curve slopes upward.
2. The Sticky-Price Theory
Chapter 20: Aggregate Demand and Aggregate Supply Analysis
Imperfection:
Many prices are sticky in the short run.
Due to menu costs, the costs of adjusting prices.
Examples: cost of printing new menus,
the time required to change price tags
Firms set sticky prices in advance based
on PE.
2. The Sticky-Price Theory
Chapter 20: Aggregate Demand and Aggregate Supply Analysis
Imperfection:
Firms may confuse changes in P with changes
in the relative price of the products they sell.
If P rises above PE, a firm sees its price rise
before realizing all prices are rising.
The firm may believe its relative price is rising,
and may increase output and employment.
So, an increase in P can cause an increase in Y,
making the SRAS curve upward-sloping.
What the 3 Theories Have in Common:
Chapter 20: Aggregate Demand and Aggregate Supply Analysis
Y = YN + a (P PE)
Output Expected
price level
Natural
rate of
a > 0,
measures Actual
output price
(long-run) how much Y
responds to level
unexpected
changes in P
What the 3 Theories Have in Common:
Chapter 20: Aggregate Demand and Aggregate Supply Analysis
Y = YNN + a (P PEE)
P
SRAS
When P > PE
the expected
PE
price level
When P < PE
Y
YN
Y < YN Y > YN
Learning Objective 20.2
Aggregate Supply
Chapter 20: Aggregate Demand and Aggregate Supply Analysis
Aggregate Supply
Chapter 20: Aggregate Demand and Aggregate Supply Analysis
Aggregate Supply
Chapter 20: Aggregate Demand and Aggregate Supply Analysis
Technological Change
Expected Changes in the Future Price Level
Aggregate Supply
Chapter 20: Aggregate Demand and Aggregate Supply Analysis
FIGURE 20.3
How Expectations of
the Future Price Level
Affect the Short-Run
Aggregate Supply
Aggregate Supply
Chapter 20: Aggregate Demand and Aggregate Supply Analysis
Aggregate Supply
Chapter 20: Aggregate Demand and Aggregate Supply Analysis
Table 20-2
Variables That Shift the Short-Run Aggregate Supply Curve
Aggregate Supply
Chapter 20: Aggregate Demand and Aggregate Supply Analysis
Table 20-2
Variables That Shift the Short-Run Aggregate Supply Curve (continued)
Macroeconomic Equilibrium
in the Long Run and the Short Run
Chapter 20: Aggregate Demand and Aggregate Supply Analysis
FIGURE 20.4
Long-Run Macroeconomic
Equilibrium
Macroeconomic Equilibrium
in the Long Run and the Short Run
Chapter 20: Aggregate Demand and Aggregate Supply Analysis
Macroeconomic Equilibrium
in the Long Run and the Short Run
Chapter 20: Aggregate Demand and Aggregate Supply Analysis
Macroeconomic Equilibrium
in the Long Run and the Short Run
Chapter 20: Aggregate Demand and Aggregate Supply Analysis
Macroeconomic Equilibrium
in the Long Run and the Short Run
Chapter 20: Aggregate Demand and Aggregate Supply Analysis
Stagflation A combination
of inflation and recession,
usually resulting from a
supply shock.
FIGURE 20.10
Using Dynamic Aggregate
Demand and Aggregate
Supply to Understand the
Recovery from the 2009
Recession
Making
the Saudis Slow Economic Recovery
Chapter 20: Aggregate Demand and Aggregate Supply Analysis
Connection
FIGURE 20.11
Using Dynamic Aggregate
Demand and Aggregate
Supply to Understand the
More Rapid Recovery of
20102011
Making
the Can FedEx and the US Economy Withstand High
Chapter 20: Aggregate Demand and Aggregate Supply Analysis