tailieunhanh - Lecture Principles of economics - Chapter 24: Aggregate demand, aggregate supply, and business cycles

This chapter develops the aggregate demand - aggregate supply model, then shows how it is used to analyze macroeconomic policy. In this chapter, students should be able to: Define the aggregate demand curve, explain why it slopes downward, and explain why it shifts; define the aggregate supply curve, explain why it slopes upward, and explain why it shifts; show how the aggregate demand curve and the aggregate supply curve determine output and the inflation rate over the business cycle. | Aggregate Demand, Aggregate Supply, and Business Cycles Chapter 24 McGraw-Hill/Irwin Copyright © 2015 by McGraw-Hill Education (Asia). All rights reserved. Learning Objectives Define the aggregate demand curve, explain why it slopes downward, and explain why it shifts Define the aggregate supply curve, explain why it slopes upward, and explain why it shifts Show how the aggregate demand curve and aggregate supply curve determine output and the inflation rate over the business cycle Analyze how the economy adjusts to expansionary and recessionary gaps, and relate this to the concept of a self-correcting economy The Great Recession in . Began December 2007 Most lengthy and severe recession since the great depression Causes: Large housing price bubble burst in July 2006 30% decline in housing prices over next 18 months Financial panic in the fall of 2008 Difficult to borrow Oil price shock Gas hit $4 per gallon in July 2008 Aggregate Demand and Aggregate Supply Analyze fluctuations in | Aggregate Demand, Aggregate Supply, and Business Cycles Chapter 24 McGraw-Hill/Irwin Copyright © 2015 by McGraw-Hill Education (Asia). All rights reserved. Learning Objectives Define the aggregate demand curve, explain why it slopes downward, and explain why it shifts Define the aggregate supply curve, explain why it slopes upward, and explain why it shifts Show how the aggregate demand curve and aggregate supply curve determine output and the inflation rate over the business cycle Analyze how the economy adjusts to expansionary and recessionary gaps, and relate this to the concept of a self-correcting economy The Great Recession in . Began December 2007 Most lengthy and severe recession since the great depression Causes: Large housing price bubble burst in July 2006 30% decline in housing prices over next 18 months Financial panic in the fall of 2008 Difficult to borrow Oil price shock Gas hit $4 per gallon in July 2008 Aggregate Demand and Aggregate Supply Analyze fluctuations in both output and the inflation rate Short run and long run analysis Inflation rate and output on the axis AD shows the relationship between planned spending and the inflation rate AS shows how output produced by firms depends on the inflation rate Potential output is shown to measure output gaps Inflation Rate Output Y Aggregate Demand (AD) Aggregate Supply (AS) Y* Long-Run Equilibrium In the long run, Actual output equals potential output Actual inflation rate equals expected price level Long-run equilibrium occurs at the intersection of Aggregate demand Aggregate supply and Potential output Inflation rate Output Y Aggregate Demand (AD) Aggregate Supply (AS) Y* Short-Run Equilibrium Short-run equilibrium occurs when the AD and AS curves intersect at a level of output different from Y* Point A in the graph Short-run equilibrium is temporary Caused by a shift in either AD or AS Inflation rate Output Y AD AS Y* Y1 P1 A The Aggregate Demand Curve The aggregate demand curve shows the .