Post on 31-Mar-2015
II. UNIT II..
C. Aggregate De mand and Aggregate Supply1. Equilibrium real GDP
and price level withstationary AD and AS
2. The depiction of cyclical unemployment, demand-pullInflation, and supply-side
inflation3. Aggregate demand stabilization
policies
EQUILIBRIUM REAL GDP AND PRICE LEVEL
SHORT RUN
PRICELEVEL
REALGDP
AS
AD
EQ. GDP
EQ.PRICELEVEL
PRICELEVEL
REALGDP
AS
AD
EQ. GDP
EQ.PRICELEVEL
WHAT'S TRUE IN EQUILIBRIUM?
PRICELEVEL
REALGDP
AS
AD
EQ. GDP
EQ.PRICELEVEL
WHAT'S TRUE IN EQUILIBRIUM?
PRICE LEVEL WHEREAGGREGATE QUANTITY SUPPLIEDEQUALS AGGREGATE QUANTITY
DEMANDED
PRICELEVEL
REALGDP
AS
AD
EQ. GDP
EQ.PRICELEVEL
WHAT'S TRUE IN EQUILIBRIUM?
PRICE LEVEL WHEREAGGREGATE QUANTITY SUPPLIEDEQUALS AGGREGATE QUANTITY
DEMANDED
WE WILL END UP THERE
PRICELEVEL
REALGDP
AS
AD
EQ. GDP
EQ.PRICELEVEL
NOTHING INHERENTLY GOODOR BAD ABOUT THE
EQUILIBRIUM
IT'S SIMPLY WHEREWE WILL END UP
PRICELEVEL
REALGDP
AD
PRICELEVEL
REALGDP
AD
AGGREGATE
PRICELEVEL
REALGDP
AS
PRICELEVEL
REALGDP
ASAGGREGATE
PRICELEVEL
REALGDP
AS
FIRST FIVE DETERMINE PRODUCTION COSTSPRODUCTION COST UP----SUPPLYDECREASES, ETC.1. resource prices2. technology and/or productivity3. taxes and subsidies4. price of other goods (particularly price of production alternatives)5. expectations (sellers' expectations about future prices) ************************6. number of sellers
DETERMINANTS OF SUPPLY
PRICELEVEL
REALGDP
AS
PRICELEVEL
REALGDP
ASPRODUCTION COSTS
UP
PRICELEVEL
REALGDP
AS
PRICELEVEL
REALGDP
AS
PRICELEVEL
REALGDP
ASPRODUCTION COSTS
DOWN
PRICELEVEL
REALGDP
AS
PRICELEVEL
REALGDP
AS
AD
EQ. GDP
EQ.PRICELEVEL
PRICELEVEL
REALGDP
EQ. GDP
AS
AD
EQ.PRICELEVEL
PRICELEVEL
REALGDP
AS
AD
EQ. GDP
EQ.PRICELEVEL
PRICELEVEL
REALGDP
AS
AD
EQ.PRICELEVEL
EQ.REAL GDP
PRICELEVEL
REALGDP
AS
AD
EQ. GDP
EQ.PRICELEVEL
PRICELEVEL
REALGDP
AS
AD
PRICELEVEL
PRICELEVEL
REALGDP
AS
AD
PRICELEVEL
GDPPRODUCED
GDPDEMANDED
PRICELEVEL
REALGDP
AS
AD
EQ. GDP
EQ.PRICELEVEL
PRICELEVEL
REALGDP
AS
AD
PRICELEVEL
GDPDEMANDED
GDPPRODUCED