1. Aggregate Demand

2. Warmup! America’s Next Top Models!
Using the chart I have given you, fill out all of the graphs that we have covered so far. Look in your notes for past graphs if you need to.

3. Mr. Clifford!
Mr. Clifford!

4. Aggregate Model
The aggregate model is used to explain or predict the effects of macroeconomic events or policies on equilibrium price and output
Example:
Event: a tsunami
Effect: Uncertainty causing less consumption and investment
Lower price and GDP

5. Aggregate Demand
Aggregate Demand = the total demand for domestic goods in an economy
Remember:
GDP = C + Ig + G + Xn

6. Huh?

7. Why does the graph go down?
1) Foreign Sector Substitution Effect
If prices rise domestically, buy internationally
If prices fall domestically, buy domestically
2) Interest Rate Effect
If prices rise, you need to borrow more $
If prices fall, you need to borrow less $
3) The Income Effect/Wealth Effect
If prices rise, you have less purchasing power

8. Can it shift? Of course it can! It can shift by changing: Consumption
Investment
Government Spending (Expenditures)
Exports
Imports

9. Consumption & Investment
Consumption will…
Investment will…

10. Expenditures and Net Exports
Expenditures will…
Net Exports will…

11. Price Deflators Deflate? Like a balloon?
Price deflators = a measure of the level of price deflation (declines in the price level)

12. MPC Marginal Propensity to Consume
Measures the proportion of how much is saved to how much is consumed (like a budget)
MPC = change in consumption change in income

13. MPS Marginal Propensity to Save
MPS measures the change in income saved
MPS = change in saving change in income