Contemporary Economics: An Applications Approach By Robert J

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Presentation transcript:

Contemporary Economics: An Applications Approach By Robert J Contemporary Economics: An Applications Approach By Robert J. Carbaugh 2nd Edition Chapter 12: Macroeconomic Instability: Aggregate Demand and Aggregate Supply

Macroeconomic equilibrium Aggregate Demand Macroeconomic equilibrium Aggregate Supply Price level (price index) A Macroeconomic equilibrium Equilibrium price level Aggregate Demand Equilibrium level of output Carbaugh, Chap. 12

Aggregate demand curve Shifts in Aggregate Demand curve Price level (price index) Price level (price index) A B AD0 AD1 AD0 AD2 Carbaugh, Chap. 12

The multiplier in action Aggregate Demand The multiplier in action Indirect effect of increased consumption spending Direct effect of an increase in investment spending Price level (price index) A B C Current price level AD2 AD0 AD1 Carbaugh, Chap. 12

Aggregate supply curve Shifts in Aggregate Supply curve AS0 AS2 AS0 AS1 Price level (price index) Price level (price index) Approaching full employment Deep recession Full employment Carbaugh, Chap. 12

The origins of recession A decrease in aggregate demand A decrease in aggregate supply AS1 AS0 AS0 Price level (price index) Price level (price index) B' A A' B AD0 AD0 Full employment Full employment AD1 Carbaugh, Chap. 12

The origins of inflation Demand-pull inflation Cost-push inflation AS0 AS1 AS0 Price level (price index) Price level (price index) C' B B' A AD1 A' AD1 AD0 AD0 Full employment Full employment Carbaugh, Chap. 12

Is productivity a cure for inflation? AS0 AS1 Price level (price index) AD0 AD1 AD2 Carbaugh, Chap. 12