unit 3 aggregate demand and supply and fiscal policy n.
Download
Skip this Video
Loading SlideShow in 5 Seconds..
Unit 3: Aggregate Demand and Supply and Fiscal Policy PowerPoint Presentation
Download Presentation
Unit 3: Aggregate Demand and Supply and Fiscal Policy

Loading in 2 Seconds...

play fullscreen
1 / 15

Unit 3: Aggregate Demand and Supply and Fiscal Policy - PowerPoint PPT Presentation


  • 204 Views
  • Uploaded on

Unit 3: Aggregate Demand and Supply and Fiscal Policy. 1. Review. Explain the results of Calvin’s proposal using AS and AD. Draw an Inflationary Gap. Draw a Recessionary Gap. Define Stagflation. Explain the Ratchet Effect. Name 10 College Majors. Classical vs. Keynesian. Adam Smith

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

Unit 3: Aggregate Demand and Supply and Fiscal Policy


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
    1. Unit 3:Aggregate Demand and Supply and Fiscal Policy 1

    2. Review • Explain the results of Calvin’s proposal using AS and AD. • Draw an Inflationary Gap. • Draw a Recessionary Gap. • Define Stagflation. • Explain the Ratchet Effect. • Name 10 College Majors.

    3. Classical vs. Keynesian Adam Smith 1723-1790 John Maynard Keynes 1883-1946

    4. Video: Classical vs. Keynesian 5

    5. Debates Over Aggregate Supply • Classical Theory • A change in AD will not change output even in the short run because prices of resources (wages) are very flexible. • AS is vertical so AD can’t increase without causing inflation. AS Price level AD Qf Real domestic output, GDP

    6. Debates Over Aggregate Supply • Classical Theory • A change in AD will not change output even in the short run because prices of resources (wages) are very flexible. • AS is vertical so AD can’t increase without causing inflation. Recessions caused by a fall in AD are temporary. AS Price level Price level will fall and economy will fix itself. No Government Involvement Required AD AD1 Qf Real domestic output, GDP 7

    7. Debates Over Aggregate Supply • Keynesian Theory • A decrease in AD will lead to a persistent recession because prices of resources (wages) are NOT flexible. • Increase in AD during a recession doesn’t cause inflation AS Price level AD Qf Real domestic output, GDP 8

    8. Debates Over Aggregate Supply • Keynesian Theory • A decrease in AD will lead to a persistent recession because prices of resources (wages) are NOT flexible. • Increase in AD during a recession puts no pressure on prices AS Price level “Sticky Wages” prevents wages to fall. The government should increase spending to close the gap AD AD1 Q1 Qf Real domestic output, GDP 9

    9. Debates Over Aggregate Supply • Keynesian Theory • A decrease in AD will lead to a persistent recession because prices of resources (wages) are NOT flexible. • Increase in AD during a recession puts no pressure on prices AS When there is high unemployment, an increase in AD doesn’t lead to higher prices until you get close to full employment Price level AD3 AD1 AD2 Q1 Qf Real domestic output, GDP 10

    10. The Ratchet Effect A ratchet (socket wrench) permits one to crank a tool forward but not backward. Like a ratchet, prices can easily move up but not down! 11

    11. Does deflation (falling prices) often occur? • Not as often as inflation. Why? • If prices were to fall, the cost of resources must fall or firms would go out of business. • The cost of resources (especially labor) rarely fall because: • Labor Contracts (Unions) • Wage decrease results in poor worker morale. • Firms must pay to change prices (ex: re-pricing items in inventory, advertising new prices to consumers, etc.) 12

    12. Three Ranges of Aggregate Supply 1. Keynesian Range- Horizontal at low output 2. Intermediate Range- Upward sloping 3. Classical Range- Vertical at Physical Capacity AS Price level Classical Range Keynesian Range Intermediate Range Qf Real domestic output, GDP 13

    13. 2006B Practice FRQ 14

    14. 2006B Practice FRQ 15