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Aggregate Demand
and Aggregate Supply
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Aggregate Demand
Real GDP desired at each price level
Inverse relationship
Real balances effect
Interest effect
Foreign purchases effect
LO1
30-2
Price level
Aggregate Demand
AD
0
LO1
LO2
30-4
Price level
AD2
AD3
AD1
30-5
Consumer Spending
LO2
Consumer wealth
Household borrowing
Consumer expectations
Personal taxes
30-6
Investment Spending
Real interest rates
Expected returns
Expectations about future business
conditions
Technology
Degree of excess capacity
Business taxes
LO2
30-7
Government Spending
Government spending increases
Aggregate demand increases (as long as
interest rates and tax rates do not change)
More transportation projects
Government spending decreases
Aggregate demand decreases
Less military spending
LO2
30-8
LO2
30-9
Aggregate Supply
Total real output produced at each price level
Relationship depends on time horizon
Immediate short run
Short run
Long run
LO3
30-10
Price level
Immediate-short-run
aggregate supply
P1
ASISR
Qf
30-11
AS
Price level
Aggregate supply
(short run)
Qf
30-12
Price level
ASLR
Long-run
aggregate
supply
Qf
30-13
LO4
30-14
AS1
Price level
AS2
LO4
Input Prices
Domestic resource prices
Labor
Capital
Land
Prices of imported resources
Imported oil
Exchange rates
LO4
30-16
Productivity
Real output per unit of input
Increases in productivity reduce costs
Decreases in productivity increase costs
Productivity
total output
total inputs
Legal-Institutional Environment
Legal changes alter per-unit costs of output
Taxes and subsidies
Extent of government regulation
LO4
30-18
Equilibrium
AS
100
a
92
Real Output
Demanded
(Billions)
Price Level
(Index Number)
Real Output
Supplied
(Billions)
$506
108
$513
508
104
512
510
100
510
512
96
507
514
92
502
AD
0
502
510 514
LO5
30-19
Changes in Equilibrium
Price level
AS
P2
P1
AD2
AD1
0
Qf
Q1 Q2
30-20
Price level
AS
P1
P2
AD1
AD2
0
LO6
Q1 Q2 Qf
Real domestic output, GDP
30-21
LO6
30-22
Price level
AS2
AS1
b
P2
P1
AD
0
LO6
Q1 Qf
Real domestic output, GDP
30-23
Price level
AS1
P3
P2
P1
AS2
b
c
a
AD2
AD1
0
Q1
Q2 Q3
30-24
30-25
30-26