Kinh tế học - Chapter 12: Delving deeper into macroeconomics

Appendix: Chapter 12Delving Deeper Into MacroeconomicsMcGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.Learning ObjectivesDefine aggregate supply and aggregate demand.Describe the effect of an aggregate supply or demand shift on prices and output.12A-2Aggregate DemandAggregate demand is the sum of the quantity demanded from the different sectors of the economy: personal consumption (C), nonresidential investment (NR), residential investment (R), government consumption and investment (G), inventory investment (I), and net exports (NX).The equation for aggregate demand (AD) is: AD = C + NR + R + G + I + NX12A-3Aggregate Demand CurveThe aggregate demand curve links the average price level of the whole economy with aggregate quantity demanded.The aggregate demand curve is downward-sloping.Thus, a decline in the overall price level leads to an increase in the quantity demanded by consumers, businesses, and government. 12A-4Aggregate Demand CurveLower aggregate prices leads to more aggregate demand for the following reasons:First is the wealth effect.Lower prices lead to an increase in the value of your assets. This higher wealth leads to more spending.Second is the interest rate effect.Lower prices lead to lower interest rates, which increases consumption.12A-5Aggregate Demand CurveThird is the exchange rate effect.As interest rates fall, it become less appealing for foreigners to invest in the U.S.The demand for dollars falls, and the dollar depreciates relative to other currencies. This increases net exports and GDP.12A-6Aggregate Demand Curve12A-7Aggregate SupplyAggregate supply is the quantity of goods and services that the economy produces. The aggregate supply curve links the average price level of the economy with the quantity of goods and services produced.The short-term aggregate supply curve is upward-sloping.But, in the long run, aggregate supply is vertical because when prices rise, so do wages and all the other costs of production. 12A-8Long-Term and Short-Term Aggregate SupplyShort-term aggregate supply curveQPPrice levelQ1GDPLong-term aggregate supply curveP112A-9Long-term EquilibriumThe long-term aggregate equilibrium occurs at the point where long-run aggregate supply is equal to aggregate demand and the two lines cross. This point gives us an equilibrium aggregate price level, P, for the economy and an equilibrium output, Q. Long-term aggregate supply is the same as potential GDP.12A-10Aggregate Demand and Supply12A-11Shifts in Aggregate SupplyA reduction in aggregate supply (curve shifts to the left) causes equilibrium output to fall and the price level to rise.Thus, inflation rises and growth slows.An increase in aggregate supply (curve shifts to the right) causes equilibrium output to increase and the price level to fall.Thus, inflation is reduced and growth rises. 12A-12 A Decline in Aggregate Supply Aggregate demand curveQPPrice levelQ1GDPOriginal long-term aggregate supply curveP1Long-term Aggregate supply after terrorist attack12A-13An Increase in Aggregate Supply12A-14Shifts in Aggregate DemandAn increase in aggregate demand (curve shifts to the right) causes both the equilibrium level of output and the price level to rise.Thus, both inflation and growth increase.But this is only temporary.A decrease in aggregate demand (curve shifts down to the left) causes both equilibrium output and the price level to fall.Thus, both inflation and growth slow.12A-15Shifts in Aggregate DemandShifts in demand lead to only temporary changes in quantity.As prices and wages adjust, the economy moves along the long-term supply curve, with prices higher but output moving back to the starting point.Attempts by policymakers to stimulate the economy and boost output above its long-term equilibrium level may succeed temporarily. 12A-16Shifts in Aggregate DemandIn the long run, however, the only outcome of government stimulation is to increase inflation. In other words, there is no sustainable way to drive unemployment down below its natural rate.12A-17An Increase in Aggregate Demand Original aggregate demand curveQPPrice levelQ1GDPShort-term aggregate supply curveP1Long-term aggregate supply curveNew aggregate demand curveP2Q2ABC12A-18