Popular in Macro Economics
Popular in Macro Economics
This 3 page Class Notes was uploaded by Maria Notetaker on Thursday September 15, 2016. The Class Notes belongs to ECON 101 at Montclair State University taught by Pirouz in Spring 2015. Since its upload, it has received 6 views. For similar materials see Macro Economics in Macro Economics at Montclair State University.
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Date Created: 09/15/16
Ch. 12 - Aggregate Demand and Aggregate Supply Thursday, April 9, 2015 10:05 AM AGGREGATE DEMAND: Real GDP desired at each price level Inverse relationshipcharts on notes 12.2 o Real balances effect o Interest effect : if interest goes up, investment goeschart on notes 12.3) o Foreign purchases effect : exports will decrease if prices go up (goods become unaffordable to other countries) Changes in agg demand shift the aggregate demand o If production increases, agg demand curve shifts to the right (creates a multiplier effect) INVESTMENT SPENDING Real interest rates Expected returns o Expectations about future business conditions (if they are positive, consumer will invest) o Technology o Degree of excess capacity o Business taxes GOVERNMENT SPENDING Government spending increases o Agg demand goes up NET EXPORT SPENDING National income abroad Exchange rates o Dollar depreciation o Dollar appreciation AGGREGATE SUPPLY: Total real output produced at each price level Relationship depends on time horizon (12.4) o Immediate short run (12.4.1) o Short run (12.4.2) o Long run (12.4.3) Changes in agg supply Factors that have impact on input cost o Domestic input prices (if goes down, supply curve shifts to the right) Labor Capital Land o Prices of imported resources Imported oil Exchange rates Productivity: real output per unit of input o Increases in productivity reduce costs o Decreases in productivity increase costs Legal changes o Taxes and subsidies (raise in taxes shifts supply curve to the left) o Extent of gov. regulation Decreases in AD: recession o Prices are downwardly flexible Fear of price wars Menu costs Wage contracts Efficiency wages: wage that worker feels he/she is worth (so they put max. effort into his/her job) Minimum wage law Increases in AS: full employment o AS shifts to the right END OF CHAPTER QUESTIONS Ratchet effect: prices move up but they don't move down once aggregate demand is reached (like a ratchet) Demand pull inflation: aggregate demand is excessive beyond aggregate supply person who wants to preserve size of gov.: increase taxes person who thinks public sector is too large: reduce government expenditures
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