aggregate demand and aggregate supply analysis

Movement of the aggregate curve

PRICE change the economy will move up or down along stationary aggregate curve.

Shift of aggregate curve

EVERYTHING ELSE any variable other then price level changes, the aggregate curves will shift.

Aggregate demand

realationship between price level and the quantity of goods and services, by housholds, firms, and the govt

downward sloping AD

WEALTH EFFECT (consumption)

lower money —- money feels worth more—— people spend more

downward sloping AD

INTEREST RATE EFFECT (investments)

high money —— high interest rates——- less investments

downward sloping AD

INTERNATIONAL EFFECR (net exports)

high US $—— exports drop——imports go up—— demand drops

What shifts AD to the right?

Anything that increases spending

changes in monetary policy

one of the first shifts in AD

means (fed=money)

changes in fiscal policy

one of the shifts in AD

means (GOVT= taxes)

changes in the expectations of houshold and firms

one of the shifts in AD

means (confidence about future)

changes in foreign variables

last shifts in AD

means (exchange rates, global economy)

Monetary policy

controlled by feds—- controls money supply and interest rates

fiscal policy

Govt decisions—- taxes+ spending

Aggregate Supply

shows the realationship in the short run between the price level and the quantity of real GDP by firms

aggregate= total production

Supply= what businesses produce in short run

What shifts SRAS to the right?

Lower costs or easier production

Real GDP

shows how much economy really porduced after removing inflation

(base year $)

What determines Long run Aggregate supply ? LRAS

Labor, capital, technology

In the long run changes in the price level…

DO NOT EFFECT the level of real gdp

captial stock

Good thing—- shifts to right

means tools and economy already has to produce stuff to make stuff ( machines, buildings, eqipment, tech)

LRAS occurs at

potential of full employment (advances each year)

Stagnation

a combo of inflation and recession , usually resulting from a supply shock.

whats one shift in SRAS

increases in the labor force and in the capital stock

whats a second shift in SRAS

technological changes

whats the 3rd shift in SRAS

changes in the expected future

whats the 4rth shift in SRAS

adjustments of workers and firms to error in the past expections about the price level.

whats the final shift in sras

unexpected changes in the $ of an important natural resource or the occurance of a natural disaster or pandemic.

if potential GDP increases continually, shifting the long run aggregate supply curve to…

Right

during most years the aggregate demand curve shifts to the…

right

expect during periods when workers and firms expect high rates of inflation the …

short run aggregate shifts to the right