ap macroeconomics
Download
Skip this Video
Download Presentation
AP Macroeconomics

Loading in 2 Seconds...

play fullscreen
1 / 18

AP Macroeconomics - PowerPoint PPT Presentation


  • 80 Views
  • Uploaded on

AP Macroeconomics. The AS/AD Model. The AS/AD Model. The equilibrium of AS & AD determines current output (GDP R ) and the price level (PL ) If equilibrium of AS & AD is ON LRAS: Unemployment is 3-4% Output is where it “should” be Also at a point ON the PPC. Full Employment.

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about ' AP Macroeconomics' - orrin


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
ap macroeconomics

AP Macroeconomics

The AS/AD Model

the as ad model
The AS/AD Model
  • The equilibrium of AS & AD determines current output (GDPR) and the price level (PL)
  • If equilibrium of AS & AD is ON LRAS:
  • Unemployment is 3-4%
  • Output is where it “should” be
  • Also at a point ON the PPC
full employment
Full Employment
  • Full Employment equilibrium exists where AD intersects SRAS & LRAS at the same point.

LRAS

SRAS

PL

P

AD

YF

GDPR

recessionary gap
Recessionary Gap
  • A recessionary gap exists when equilibrium occurs below full employment output.

SRAS

LRAS

PL

P

AD

Y

YF

GDPR

inflationary gap
Inflationary Gap
  • An inflationary gap exists when equilibrium occurs beyond full employment output.

LRAS

SRAS

PL

P

AD

YF

Y

GDPR

changes in ad
Changes (Δ)in AD
  • Δ Consumption (C)
    • C↑ .: AD  .: GDPR↑ & PL↑ .: u%↓ & π%↑
    • C↓ .: AD  .: GDPR↓ & PL↓ .: u%↑ & π%↓
  • Δ Gross Private Investment (IG)
    • IG↑ .: AD  .: GDPR↑ & PL↑ .: u%↓ & π%↑
    • IG↓ .: AD  .: GDPR↓ & PL↓ .: u%↑ & π%↓
changes in ad cont
Changes (Δ)in AD (cont)
  • Δ Government Spending (G)
    • G↑ .: AD  .: GDPR↑ & PL↑ .: u%↓ & π%↑
    • G↓ .: AD  .: GDPR↓ & PL↓ .: u%↑ & π%↓
  • Δ Net Exports (XN)
    • XN↑ .: AD  .: GDPR↑ & PL↑ .: u%↓ & π%↑
    • XN↓ .: AD  .: GDPR↓ & PL↓ .: u%↑ & π%↓
increase in ad
Increase in AD

SRAS

LRAS

PL

P1

P

AD1

AD

Y

YF

GDPR

C↑, IG↑, G↑ and/or XN↑ .: AD  .: GDPR↑ & PL↑ .: u%↓ & π%↑

decrease in ad
Decrease in AD

LRAS

PL

SRAS

P

P1

AD

AD1

YF

Y

GDPR

C↓, IG↓, G↓ and/or XN↓ .: AD  .: GDPR↓ & PL↓ .: u%↑ & π%↓

changes in sras
Changes (Δ)in SRAS
  • Δ Input Prices
    • Input Prices↓ .: SRAS  .: GDPR↑ & PL↓ .: u%↓ & π%↓
    • Input Prices↑ .: SRAS  .: GDPR↓ & PL ↑ .: u%↑ & π%↑
  • Δ Productivity
    • Productivity↑ .: SRAS  .: GDPR↑ & PL↓ .: u%↓ & π%↓
    • Productivity↓ .: SRAS  .: GDPR↓ & PL ↑ .: u%↑ & π%↑
changes in sras cont
Changes (Δ)in SRAS (cont)
  • Δ Legal-Institutional Environment
    • Deregulation .: SRAS  .: GDPR↑ & PL↓ .: u%↓ & π%↓
    • Regulation .: SRAS  .: GDPR↓ & PL ↑ .: u%↑ & π%↑
increase in sras
Increase in SRAS

SRAS

LRAS

PL

SRAS1

P

P1

AD

Y

YF

GDPR

Input Prices↓, Productivity↑, and/or Deregulation

.: SRAS  .: GDPR↑ & PL↓ .: u%↓ & π%↓

decrease in sras
Decrease in SRAS

SRAS1

LRAS

PL

SRAS

P1

P

AD

Y1

YF

GDPR

Input Prices↑, Productivity↓, and/or Regulation/Business Taxes ↑

.: SRAS  .: GDPR↓ & PL↑ .: u%↑ & π%↑

as ad summary
AS / AD Summary
  • ΔC, ΔIG, ΔG, and/or ΔXN = Δ AD
    • AD  .: GDPR↑ & PL↑ .: u%↓ & π%↑
    • AD  .: GDPR↓ & PL↓ .: u%↑ & π%↓
  • Δ Input Prices, Δ Productivity,

and/or Δ Regulation = Δ SRAS

    • SRAS  .: GDPR↑ & PL↓ .: u%↓ & π%↓
    • SRAS  .: GDPR↓ & PL ↑ .: u%↑ & π%↑
slide15

Increase in G with an increase in Taxes increases AD. (Multiplier)

  • The AS/AD Model is the most important graph in AP Macroeconomics.
  • KNOW IT!!!
slide16

Assume the US economy is in a state of full employment.

  • Draw a correctly labeled AS/AD graph showing representing that fact.
  • Now suppose that private investment decreases. Show the effect of that decrease on your AS/AD graph.
  • Explain the impact of the decrease in private investment.
long run aggregate supply lras
Long-Run Aggregate Supply (LRAS)
  • scenario to illustrate the point that we will always (hopefully) come back to LRAS and why/how LRAS is independent of price level
  • To produce more than full employment output overtime is necessary.
  • Input costs (labor) will go up
  • When input costs are free to change, the high demand for them will start to raise input costs and lead to cost push inflation
long run aggregate supply lras1
Long-Run Aggregate Supply (LRAS)
  • As input prices increase firms profits will fall until rise in input prices match the change in output prices.
  • Firm profits return to original levels and firms will be motivated to produce at FE output level
ad