Chapter 6 Aggregate Supply Aggregate Demand and Price Adjustment 且经济学院1
1 Chapter 6 Aggregate Supply、 Aggregate Demand and Price Adjustment 0 10 20 30 40 90 91 92 93 94 95 96 97 98 99 00
Topics to be Discusses o Aggregate Demand(AD) Function o Aggregate Supply (AS) Function ⊙ AS-AD Model o Price Changes and determination of Output o Price Adjustment Process 友学经济学院
Topics to be Discusses Aggregate Demand (AD) Function Aggregate Supply（AS）Function AS-AD Model Price Changes and Determination of Output Price Adjustment Process
6.1 AD Function o Aggregate Demand: the gross demand for production and service under a given price level O AD Function: the relationship between aggregate and price level, or the quantitative relations between general price level and social equilibrium expenditure AD=C+I+G+N 友学经济学院
Aggregate Demand：the gross demand for production and service under a given price level. AD Function：the relationship between aggregate and price level，or the quantitative relations between general price level and social equilibrium expenditure. AD =C + I +G + NX 6.1 AD Function
6.1 AD Function AE AEo ⊙ AD Curve 0 0 AEl From the angle of aggregate expenditure: Price is Po, Y Aggregate expenditure is AEo 章 Price is f Aggregate expenditure is AE1 一十一 AD Y1 复具学济器院
6.1 AD Function AD Curve ❖ From the angle of aggregate expenditure： Price is P0， Aggregate expenditure is AE0 Price is P1， Aggregate expenditure is AE1 AE E’0 Y Y 0 AE0 AE1 Y0 Y P P0 Y1 Y1 AD P1 E0 E1 O E’1 O
6. 1 AD Function o Why is the AD Curve downward sloping? nterest Effect:P个→Md个→R个→→ AE and y↓ Real Income effect:P↑→Weah→Cand|→AE and Y Taxation Effect:P↑→Wage↑→T个→Yd→Cand|↓ → AE and y↓ Import-and-export:P↑→X,M↑→1→ AE and y↓ 友学经济学院
Why is the AD Curve downward sloping? ❖ Interest Effect: P Md R I AE and Y ❖ Real Income Effect: P Wealth C and I AE and Y ❖ Taxation Effect: P Wage T Yd C and I AE and Y ❖ Import-and-export: P X ,M I AE and Y 6.1 AD Function
6.1 AD Function: Monetary Policies and AD curve OIncrease nominal money supply at the equilibrium point(rl, y1 OLM Curve shifts down to LM2, and under the same price level Ploutput increases to Y 2 ⊙ AD Curve shifts to Al2 ADI R LM P AD2 RR Y 几大学经济学院
6.1 AD Function：Monetary Policies and AD Curve R Y Y R1 Y1 IS1 P LM1 Y1 AD1 P1 Increase nominal money supply at the equilibrium point (R1, Y1) LM2 1. LM Curve shifts down to LM2，and under the same price level P1output increases to Y2 Y2 R2 Y2 2. 2. AD Curve shifts to AD2 AD2 3
6.1 AD Function: Fiscal policies and ad curves OIncrease government purchase at the equilibrium point(r, YG OIS Curve shifts to IS2 and under the same price level output Increases to Y2 ⊙ AD curve shifts to ad2 ADI R P AD2 PI R R 2 2. Y2 Y 复经济学院
R Y Y R1 Y1 IS1 P LM1 Y1 AD1 P1 Increase government purchase at the equilibrium point (R1 , Y1 )G IS2 1. IS Curve shifts to IS2 . and under the same price level output increases to Y2 Y2 R2 Y2 2. 2. AD curve shifts to AD2 AD2 3. 6.1 AD Function：Fiscal policies and AD curves
6.1 AD Function: S-LM Curves and AD Curves in Short or Long Term ⊙|S-LM: Y=C(Y-7)+I(7)+ M/P=L(r) o Short term(Keynesian): given P= P1, solve r andy IS-LM for a given price level o Long term(Classical): given Y=YLR solve r and p LRAS and ad curves 友学经济学院
6.1 AD Function：IS-LM Curves and AD Curves in Short or Long Term IS-LM： Short term (Keynesian)： given P = P1,solve r and Y。 ❖ IS-LM for a given price level Long term (Classical)： given Y = YLR solve r and P。 ❖ LRAS and AD curves / ( , ) ( ) ( ) M P L Y r Y C Y T I r G = = − + +
6.2 AS Function ⊙ Determinants of as s Human resources: including the quantity and quality of labor .o Nature resources: including land, mine forests, ocean and anything that could be used for production and services Capital stock: including factories equipments highway etc o Technology: the transformation from inputs to outputs 友学经济学院
6.2 AS Function Determinants of AS ❖ Human resources：including the quantity and quality of labor ❖ Nature resources：including land, mine , forests, ocean and anything that could be used for production and services ❖ Capital stock：including factories 、 equipments、highway etc. ❖ Technology：the transformation from inputs to outputs
6.2 AS Function o Aggregate Supply: gross supply of productions and services in the whole society at a given price level, which depends on one country's productive factors and technology level O AS Function: the relationship between aggregate supply and price level, or the quantitative relationship between gross supply in the whole society and the price level 友学经济学院
6.2 AS Function Aggregate Supply：gross supply of productions and services in the whole society at a given price level, which depends on one country’s productive factors and technology level. AS Function：the relationship between aggregate supply and price level, or the quantitative relationship between gross supply in the whole society and the price level