Ap macroeconomics
Download
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%↑


Ap macroeconomics


Ap macroeconomics

  • Assume the US economy is in a state of full employment. (Multiplier)

  • 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) (Multiplier)

  • 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) (Multiplier)

  • 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