Economics

TOPIC some: AGGREGATE REQUIRE (AD)/ AGGREGATE SUPPLY (AS) MODEL

Learning Objectives

• Understand ADVERTISING and ADVERTISING curve • Discuss factors shifting ADVERTISING curve • Understand AS and AS curve • Talk about factors moving AS competition • Figure out Macroeconomic balance

LO1

Combination Demand (AD)

• ADVERTISEMENT refers to the actual GDP demanded • • •

at each price level. Y sama dengan AD sama dengan C + I + G + (X – M) There is an inverse relationship among real GDP demanded plus the price level. AD competition is downward sloping.

LO1

Aggregate Demand

Price level

AD

zero

LO1

True domestic end result, GDP

Motion along ADVERTISEMENT curve

• Changes in selling price will cause a movement along the AD shape.

Reasons for ADVERTISING to be downward sloping

• Real balances effect -- when price rises, purchasing power fall; C falls as a result. AD and actual GDP fall season. • Rate of interest effect - when price rises, demand for money increases. Interest rate increases as a result. When interest rate boosts, I and C is catagorized. AD and real GDP fall. • Foreign acquisitions effect – when regional items be a little more expensive, and also the demand much less of local goods. Back button falls and M boosts. AD and real GROSS DOMESTIC PRODUCT fall.

Elements shifting ADVERTISEMENT curve

• Given that AD = C + My spouse and i + G + (X-M), any elements •

affecting each component will affect AD. Elements affecting C:

• Factors affecting I: • Elements affecting G: • Elements affecting Back button: • Factors affecting M: LO1

Changes of AD curve

Selling price level

AD2 AD3

zero

AD1

Genuine domestic end result, GDP

LO1

Aggregate Source

• BECAUSE refers to the whole real output • • •

made at each price level. Selling price and true GDP supplied are positively related. The AS curve is up sloping. Activity along the BECAUSE curve is caused by changes in the price level.

LO2

SINCE curve: Growing process

AS

Price level

Mixture supply (short run)

0

Real home output, GDP

LO2

Factors that switch AS competition

1 . Resource/Input prices: • Labor – Wages • Land – Rent • Price of raw materials (i. e. Value of oil) - Increase in the price of resources raises the expense of production and reduces revenue. - WHILE falls as well as the AS curve shifts left. 2 . Natural Disasters (i. e. flood, drought, earthquake) Earthquake ruins office complexes and factory and production will fall season. Hence, AS falls. LO2

Shifts of AS curve

AS3 AS1 AS2

Selling price level

zero

Real home-based output, GROSS DOMESTIC PRODUCT

LO2

Macroeconomic Equilibrium

Macroeconomic Equilibrium is present when ADVERTISEMENT = AS

AS

Value level (index numbers)

True Output Required (Billions) Genuine Output Delivered (Billions)

Cost Level (Index Number)

$506 508

95 e0

108 104 95 96 ninety two

$513 512 510 507 502

510 512 ADVERTISING 514

zero

510

Real domestic end result, GDP (billions of dollars)

LO3

AD Increases

BECAUSE

Price level

P2 P1

AD2 AD1 0

LO4

Q1

Q2

Real home output, GROSS DOMESTIC PRODUCT

Decreases in AD

SINCE

Price level

P1 P2

b

a

AD1 AD2 0

LO4

Q2

Q1

Real home-based output, GROSS DOMESTIC PRODUCT

Decreases in AS

AS2

AS1

Price level

m P2 P1 a

ADVERTISEMENT 0

LO4

Q2 Q1

Real household output, GROSS DOMESTIC PRODUCT

Increases in AS: Full-Employment

AS1 AS2

Price level

P1 P2

a m

AD1 0

LO4

Q1

Q2

Actual domestic end result, GDP

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