Macroeconomics Chapter 9 Notes
Macroeconomics Chapter 9 Notes eco 105
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This 2 page Class Notes was uploaded by Daniel Hong on Saturday November 21, 2015. The Class Notes belongs to eco 105 at Pace University taught by Mark Weinstock in Fall 2015. Since its upload, it has received 31 views. For similar materials see Principles of Economics: Macroeconomics in Economcs at Pace University.
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Date Created: 11/21/15
Chapter 9 Aggggate Demand and Aggggate Supply This is more of an inside of the box model Bifurcated polarized spilt In the long run everything is exible In the short run is when prices are sticky 1 Prices and wages adjust freely in the long run All the spending that goes on in the economy when economists talk about aggregate demand All the production of goods and services what aggregate supply is Fluctuations in the economy can be seen as failures in coordination Business Cycle Fluctuation in the economy If the economy gets messed up than aggregate supply and demand cannot be equal Short Run in Macroeconomics the period of time in which process do not change or do not change very much What is the Aggregate Demand Curve Aggregate Demand Curve AD a curve that shows the relationship between the level of prices and the quantity of Real GDP demanded Spending is aggregate demand and is also equal to C I G NX Why the Aggregate Demand Curve Slopes Downward Negative Slope As the purchasing power of money changes the aggregate demand curve is affected on three different ways The wealth effect the increase in spending that occurs because the real value of money increases when the price level falls 0 Aimed at consumer spending The interest rate effect with a given supply of money in the economy a lower price level will lead to lower interest rates The international trade effect in an open economy a lower price level will mean that domestic goods goods produced in the home country become cheaper relative to foreign goods so the demand for domestic goods will increase Shifts in the Aggggate Demand Curve Changes in the supply of money An increase in the supply of money in the economy will increase aggregate demand and shift the aggregate demand curve to the right Changes in Taxes A decrease in taxes will increase aggregate demand and shift the aggregate demand curve to the right Changes in Government Spending At any given price level an increase in government spending will increase aggregate demand and shift the aggregate demand curve to the right How the Multiplier Males the Shift Bigger Multiplier the ratio of the total shift in aggregate demand to the initial shift in aggregate demand Consumption Function the relationship between the level of income and consumer spending C Ca by Autonomous Consumption Spending the part of consumption spending that does not depend on income Marginal Propensity to Consume MPC the fraction of additional income that is spent MPC Additional Consumption Additional Income Multiplier llMPC lMPC MPS Aggregate Supply Curve AS a curve that shows the relationship between the level of prices and the quantity of output supplied The Long Run Aggregate Supply Curve Long Run Aggregate Supply Curve A vertical aggregate supply curve that represents the idea that in the long run output is determined solely by the factors of production The Short Run Aggregate Supply Curve Short Run Aggregate Supply Curve a relatively at aggregate supply curve that represents the idea that prices do not change very much in the short run and that firms adjust production to meet demand The key factors to determine the costs firms must incur to produce output are 0 Input prices wages and materials0 0 The state of technology 0 Taxes subsidies or economic regulations Supply Shocks external events that shift the aggregate supply curve Stag ation a decrease in real output with increasing prices
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