ModuleEquilibrium inthe Aggregate Demand-Aggregate Supply Model

KRUGMAN'SMACROECONOMICS for AP*

19

Margaret Ray and David Anderson

Aggregate Supply Changes

Parts 1, 2, and 3

Last page of yesterday’s worksheet

Do NowDo Now

Modules 19 & 16 equilibrium and multiplier

Do the module questions!

ReadingReading

What you will learnWhat you will learn

in thisin this ModuleModule::

• The difference between short-run and long-run macroeconomic equilibrium

• The causes and effects of demand shocks and supply shocks

• How to determine if an economy is experiencing a recessionary gap or an inflationary gap and how to calculate the size of the output gaps

• Model used to analyze economic fluctuations

The AD-AS ModelThe AD-AS Model

Short-Run Macroeconomic Short-Run Macroeconomic EquilibriumEquilibrium

• Short-Run Macroeconomic Equilibrium

• Price Level

• Aggregate Output

• Shortage/Surplus

• Relative Declines

Activity # 25Activity # 25

• Part A

• Equilibrium price adjustments

Shifts of Aggregate Shifts of Aggregate Demand: Short-Run EffectsDemand: Short-Run Effects

• Demand Shock

• Negative Demand Shock

• Positive Demand Shock

•`

Shifts of the SRAS CurveShifts of the SRAS Curve

• Supply Shock

• Negative Supply Shock

• Stagflation

• Positive Supply Shock

Activity # 25Activity # 25

• Part B

• Aggregate Supply and Demand Shifts

Long-Run Macroeconomic Long-Run Macroeconomic EquilibriumEquilibrium

• Long-Run Macroeconomic Equilibrium

• Recessionary Gap

• Self-Correction

• Inflationary Gap

• Self-Correction

• Output Gap

Figure 19.5 Short-Run Versus Long-Run Effects of a Negative Demand ShockRay and Anderson: Krugman’s Macroeconomics for AP, First EditionCopyright © 2011 by Worth Publishers

Figure 19.6 Short-Run Versus Long-Run Effects of a Positive Demand ShockRay and Anderson: Krugman’s Macroeconomics for AP, First EditionCopyright © 2011 by Worth Publishers

Activity # 28Activity # 28

• Part B

• Long-term equilibrium adjustments

Activity # 28Activity # 28

• Part B

• Equilibrium price adjustments

SummarySummary

Short-term equilibrium

Negative / positive demand/supply shocks

Negative supply shock – stagflation Output can be higher or lower.

Long-term equilibrium

Return to LRAS output Nominal wage adjustment

Exit TicketExit Ticket

• Last page of activity # 28

•“In class activities and demonstrations”