1、Aggregate Demand and Aggregate SupplyChapter 31Short-Run Economic FluctuationsuEconomic activity fluctuates from year to year.uIn most years production of goods and services rises.uOn average over the past 50 years, production in the U.S. economy has grown by about 3 percent per year.uIn some years

2、normal growth does not occur, causing a recession. Short-Run Economic FluctuationsuA recession is a period of declining real GDP, falling incomes, and rising unemployment.uA depression is a severe recession.Three Key Facts About Economic FluctuationsuEconomic fluctuations are irregular and unpredict

3、able.uFluctuations in the economy are often called the business cycle.uMost macroeconomic variables fluctuate together.uAs output falls, unemployment rises.Recessions(a) Real GDPBillions of1992 Dollars19651970197519801985199019952,5003,0003,5004,0004,5005,0005,5006,0006,500$7,000Real GDPA Look At Sh

4、ort-Run Economic FluctuationsThree Key Facts About Economic FluctuationsuMost macroeconomic variables fluctuate together.uMost macroeconomic variables that measure some type of income or production fluctuate closely together. uAlthough many macroeconomic variables fluctuate together, they fluctuate

5、by different amounts.Recessions(b) Investment SpendingBillions of1992 Dollars3004005006007008009001,000$1,100Investment spending1965197019751980198519901995A Look At Short-Run Economic FluctuationsThree Key Facts About Economic FluctuationsuAs output falls, unemployment rises.uChanges in real GDP ar

6、e inversely related to changes in the unemployment rate.uDuring times of recession, unemployment rises substantially.Recessions(c) Unemployment RateUnemployment rate0246810121965197019751980198519901995Percent ofLabor ForceA Look At Short-Run Economic FluctuationsHow the Short Run Differs From the L

7、ong RunuMost economists believe that classical theory describes the world in the long run but not in the short run.uChanges in the money supply affect nominal variables but not real variables in the long run.uThe assumption of monetary neutrality is not appropriate when studying year-to-year changes

8、 in the economy.The Basic Model of Economic FluctuationsuTwo variables are used to develop a model to analyze the short-run fluctuations.uThe economys output of goods and services measured by real GDP.uThe overall price level measured by the CPI or the GDP deflator.The Basic Model of Economic Fluctu

9、ationsEconomist use the model of aggregate demand and aggregate supply to explain short-run fluctuations in economic activity around its long-run trend.The Basic Model of Economic FluctuationsuThe aggregate demand curve shows the quantity of goods and services that households, firms, and the governm

10、ent want to buy at each price level.The Basic Model of Economic FluctuationsuThe aggregate supply curve shows the quantity of goods and services that firms produce and sell at each price level.Aggregate Demand and Aggregate Supply.EquilibriumoutputQuantity ofOutputPriceLevel0Equilibriumprice levelAg

11、gregatesupplyAggregatedemandThe Aggregate Demand CurveuThe four components of GDP (Y) contribute to the aggregate demand for goods and services.Y = C + I + G + NXThe Aggregate-Demand Curve.Quantity ofOutputPriceLevel0AggregatedemandP1Y1Y2P22. increases the quantity of goods and services demanded.1.

12、A decrease in the price level.Why the Aggregate Demand Curve Is Downward SlopinguThe Price Level and Consumption: The Wealth EffectuThe Price Level and Investment: The Interest Rate EffectuThe Price Level and Net Exports: The Exchange-Rate EffectThe Price Level and Consumption: The Wealth EffectuA d

13、ecrease in the price level makes consumers feel more wealthy, which in turn encourages them to spend more. uThis increase in consumer spending means larger quantities of goods and services demanded.The Price Level and Investment: The Interest Rate EffectuA lower price level reduces the interest rate

14、, which encourages greater spending on investment goods.uThis increase in investment spending means a larger quantity of goods and services demanded.The Price Level and net Exports: The Exchange-Rate EffectuWhen a fall in the U.S. price level causes U.S. interest rates to fall, the real exchange rat

15、e depreciates, which stimulates U.S. net exports.uThe increase in net export spending means a larger quantity of goods and services demanded.Why the Aggregate Demand Curve Might ShiftuThe downward slope of the aggregate demand curve shows that a fall in the price level raises the overall quantity of

16、 goods and services demanded.uMany other factors, however, affect the quantity of goods and services demanded at any given price level. uWhen one of these other factors changes, the aggregate demand curve shifts.Why the Aggregate Demand Curve Might ShiftuShifts arising from ConsumptionuShifts arisin

17、g from InvestmentuShifts arising from Government PurchasesuShifts arising from Net ExportsShifts in the Aggregate Demand Curve.Quantity ofOutputPriceLevel0Aggregatedemand, D1P1Y1D2Y2 The Aggregate Supply CurveuIn the long run, the aggregate-supply curve is vertical.uIn the short run, the aggregate-s

18、upply curve is upward sloping.The Long-Run Aggregate Supply CurveuIn the long-run, an economys production of goods and services depends on its supplies of labor, capital, and natural resources and on the available technology used to turn these factors of production into goods and services. uThe pric

19、e level does not affect these variables in the long run.The Long-Run Aggregate- Supply Curve.Quantity ofOutputNatural rateof outputPrice Level0Long-runaggregatesupplyP1P2 2. does not affect the quantity of goods and services supplied in the long run.1. A change in the price levelThe Long-Run Aggrega

20、te Supply CurveuThe long-run aggregate supply curve is vertical at the natural rate of output.uThis level of production is also referred to as potential output or full-employment output.Why the Long-Run Aggregate Supply Curve Might ShiftuAny change in the economy that alters the natural rate of outp

21、ut shifts the long-run aggregate-supply curve.uThe shifts may be categorized according to the various factors in the classical model that affect output.Why the Long-Run Aggregate Supply Curve Might ShiftuShifts arising from LaboruShifts arising from CapitaluShifts arising from Natural ResourcesuShif

22、ts arising from Technological Knowledge1. In the long-run, technological progress shifts long-run aggregate supply.LRAS2000LRAS1990Long-Run Growth and Inflation.Quantity ofOutputPrice Level0P1980Y1980AD1980P2000P1990LRAS19802. and growth in the money supply shifts aggregate-demand.AD2000AD19904. and

23、 ongoing inflation.Y1990Y20003. leading to growth in output.Long-Run Growth and InflationShort-run fluctuations in output and price level should be viewed as deviations from the continuing long-run trends.Why the Short-Run Aggregate Supply Curve Slopes Upward in the Short RunuIn the short run, an in

24、crease in the overall level of prices in the economy tends to raise the quantity of goods and services supplied.uA decrease in the level of prices tends to reduce the quantity of goods and services supplied.The Short-Run Aggregate Supply Curve.Quantity ofOutputPrice Level0Short-runaggregatesupplyY1P

25、1Y22. reduces the quantity of goods and services supplied in the short run.P21. A decrease in the price levelWhy the Short-Run Aggregate Supply Curve Slopes Upward in the Short RunuThe Misperceptions TheoryuThe Sticky-Wage TheoryuThe Sticky-Price TheoryThe Misperceptions TheoryuChanges in the overal

26、l price level temporarily mislead suppliers about what is happening in the markets in which they sell their output:uA lower price level causes misperceptions about relative prices.uThese misperceptions induce suppliers to decrease the quantity of goods and services supplied.The Sticky-Wage TheoryuNo

27、minal wages are slow to adjust, or are “sticky” in the short run:uWages do not adjust immediately to a fall in the price level.uA lower price level makes employment and production less profitable.uThis induces firms to reduce the quantity of goods and services supplied.The Sticky-Price TheoryuPrices

28、 of some goods and services adjust sluggishly in response to changing economic conditions: uAn unexpected fall in the price level leaves some firms with higher-than-desired prices.uThis depresses sales, which induces firms to reduce the quantity of goods and services they produce.Why the Aggregate S

29、upply Curve Might ShiftuShifts arising from LaboruShifts arising from CapitaluShifts arising from Natural Resources.uShifts arising from Technology.uShifts arising from the Expected Price Level.uAn increase in the expected price level reduces the quantity of goods and services supplied and shifts th

30、e short-run aggregate supply curve to the left.uA decrease in the expected price level raises the quantity of goods and services supplied and shifts the short-run aggregate supply curve to the right.Why the Aggregate Supply Curve Might ShiftThe Long-Run EquilibriumQuantity ofOutputPriceLevel0Short-r

31、un aggregatesupplyLong-runaggregatesupplyAggregatedemandAEquilibrium priceNatural rateof output1. A decrease inaggregate demandAD2A Contraction in Aggregate Demand.Quantity ofOutputPriceLevel0Short-run aggregatesupply, AS1 Long-runaggregatesupplyAggregatedemand, AD1AP1Y1BP2Y2 2. causes output to fal

32、l in the short runAS2CP33. but over time,the short-run aggregate-supply curve shifts4. and output returnsto its natural rate.Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.Shifts in Aggregate DemanduIn the short run, shifts in aggregate demand cause fluctuations in the econom

33、ys output of goods and services.uIn the long run, shifts in aggregate demand affect the overall price level but do not affect output.An Adverse Shift in Aggregate SupplyuA decrease in one of the determinants of aggregate supply shifts the curve to the left:uOutput falls below the natural rate of emp

34、loyment.uUnemployment rises.uThe price level rises.1. An adverse shift in the short-run aggregate-supply curveAS2Long-runaggregatesupplyShort-run aggregatesupply, AS1Quantity ofOutputPriceLevel0Aggregate demandAY1P1An Adverse Shift in Aggregate Supply.3. and the price level to rise. P22. causes outp

35、ut to fallBY2StagflationuAdverse shifts in aggregate supply cause stagflationa combination of recession and inflation.uOutput falls and prices rise.uPolicymakers who can influence aggregate demand cannot offset both of these adverse effects simultaneously.Policy Responses to RecessionuPolicymakers m

36、ay respond to a recession in one of the following ways:uDo nothing and wait for prices and wages to adjust.uTake action to increase aggregate demand by using monetary and fiscal policy.AS21. When short-run aggregate supply fallsAccommodating an Adverse Shift in Aggregate Supply.Quantity ofOutputNatu

37、ral rateof outputPriceLevel0Short-run aggregate supply, AS1 Aggregate demand, AD1Long-run aggregate supplyAP1P2P33.which causes the price level to rise 4. but keeps output at its natural rate.C2. policymakers canaccommodate the shiftby expanding aggregatedemandAD2The Effects of a Shift in Aggregate

38、SupplyuShifts in aggregate supply can cause stagflation a combination of recession and inflation.uPolicymakers who can influence aggregate demand cannot offset both of these adverse effects simultaneously.SummaryuAll societies experience short-run economic fluctuations around long-run trends. uThese

39、 fluctuations are irregular and largely unpredictable.uWhen recessions occur, real GDP and other measures of income, spending, and production fall, and unemployment rises.SummaryuEconomists analyze short-run economic fluctuations using the aggregate demand and aggregate supply model.uAccording to th

40、e model of aggregate demand and aggregate supply, the output of goods and services and the overall level of prices adjust to balance aggregate demand and aggregate supply.SummaryuThe aggregate-demand curve slopes downward for three reasons: a wealth effect, an interest rate effect, and an exchange r

41、ate effect.uAny event or policy that changes consumption, investment, government purchases, or net exports at a given price level will shift the aggregate-demand curve.SummaryuIn the long run, the aggregate supply curve is vertical.uThe short-run, the aggregate supply curve is upward sloping. uThe a

42、re three theories explaining the upward slope of short-run aggregate supply: the misperceptions theory, the sticky-wage theory, and the sticky-price theory.SummaryuEvents that alter the economys ability to produce output will shift the short-run aggregate-supply curve.uAlso, the position of the shor

43、t-run aggregate-supply curve depends on the expected price level.uOne possible cause of economic fluctuations is a shift in aggregate demand.SummaryuA second possible cause of economic fluctuations is a shift in aggregate supply.uStagflation is a period of falling output and rising prices.Graphical

44、ReviewRecessions(a) Real GDPBillions of1992 Dollars19651970197519801985199019952,5003,0003,5004,0004,5005,0005,5006,0006,500$7,000Real GDPA Look At Short-Run Economic FluctuationsRecessions(b) Investment SpendingBillions of1992 Dollars3004005006007008009001,000$1,100Investment spending19651970197519

45、80198519901995A Look At Short-Run Economic FluctuationsRecessions(c) Unemployment RateUnemployment rate0246810121965197019751980198519901995Percent ofLabor ForceA Look At Short-Run Economic FluctuationsAggregate Demand and Aggregate Supply.EquilibriumoutputQuantity ofOutputPriceLevel0Equilibriumpric

46、e levelAggregatesupplyAggregatedemandThe Aggregate-Demand Curve.Quantity ofOutputPriceLevel0AggregatedemandP1Y1Y2P22. increases the quantity of goods and services demanded.1. A decrease in the price level.Shifts in the Aggregate Demand Curve.Quantity ofOutputPriceLevel0Aggregatedemand, D1P1Y1D2Y2 Th

47、e Long-Run Aggregate- Supply Curve.Quantity ofOutputNatural rateof outputPrice Level0Long-runaggregatesupplyP1P2 2. does not affect the quantity of goods and services supplied in the long run.1. A change in the price levelLong-Run Growth and Inflation.1. In the long-run, technological progress shifts long-run aggregate supply.LRAS2000LRAS1990Quantity ofOutputPrice