1. Aggregate Demand/Aggregate Supply
The Alpha and Omega of Macroeconomics Graphs

2. Production Possibilities Curve/Gross Domestic Product Connection.A
Assume this economy is fully employing all of its resources in the least costly way (Productive Efficiency) and chooses to produce at point “A” (Allocative Efficiency)
Assume this economy can produce 5 Capital goods and services
And 10 consumption goods and services
Assume one capital G/S costs $5.00 and 1 consumption G/S costs $1.00
What is this economy’s GDP?
Capital 5
Aggregate Demand/Aggregate Supply 10
LRAS
Consumption
Price
Level
5 Capital G/S X $5.00 = $25.00
10 Consumption G/S x $1.00 = $10.00
GDP - $35.00
This GDP represents Full-Employment
or “Potential GDP”.
$35 FE
***Point “A” on the PPC is the same
thing as Full Employment Real GDP
Represented by LRAS – only expressed
In $$$$$$***
Real GDP

3. LRAS Price Level Real GDP
Real GDP FE
RGDP
Between 0 and FE RGDP is a large range of Dollar value of GDP. EVERYONE of these Points to the LEFT of FE RGDP will represent RGDP values that are LESS than our Full-Employment POTENTIAL RGDP.

4. LRAS Price Level Real GDP
Real GDP FE
RGDP
REMEMBER: To Calculate RGDP we take Nominal GDP (Price x Quantity) and factor out changes in Price relative to a base year.

5. This is ACTUAL RGDP This is POTENTIAL RGDP
LRAS
Price Level
PL1
Real GDP
RGDP1 FE
RGDP
This is ACTUAL RGDP This is POTENTIAL RGDP

6. LRAS Price Level PL1 Real GDP
RGDP1 FE
RGDP
If the economy was producing this amount of RGDP relative to the FE RGDP it is in serious trouble. It is way inside its productive capacity. Resource prices (Input prices) and wage rates are going to be low because there is VERY high Unemployment and a high supply of unused resources (Inputs)

7. LRAS Price Level PL1 Real GDP
RGDP1
RGDP2 FE
RGDP
If we move to the production of RGDP2 we can see the economy is using MORE of its slack resources to produce RGDP (Inputs AND people) BUT the Price Level is steady…This is because we STILL have relatively HIGH Unemployment and there is still enough slack resources to keep their prices Low.

8. This will continue over a range of RGDP production…
LRAS
Price Level
PL1
Real GDP
RGDP1
RGDP2
RGDP3 FE
RGDP
This will continue over a range of RGDP production…

9. LRAS Price Level PL1 Real GDP
RGDP1
RGDP2
RGDP3
RGDP4 FE
RGDP
This will continue over a range of RGDP production until we come to this next important point…

10. LRAS Price Level PL1 Real GDP
RGDP1
RGDP2
RGDP3
RGDP4
RGDP5 FE
RGDP
What we have constructed so far is a range of production of RGDP that the economy CAN produce, but is not desirable…In the LONG RUN we hope to be at FE RGDP, but because of the current conditions the economy, in the SHORT RUN, can produce any one of these RGDP levels

11. LRAS Price Level PL1 Real GDP
RGDP1
RGDP2
RGDP3
RGDP4
RGDP5 FE
RGDP
Hence, we have ONE part of our SHORT RUN AGGREGATE SUPPLY CURVE---The Horizontal, or Keynesian, Range.

12. This will continue over a range of RGDP production…UNTIL….
LRAS
Price Level
PL1
Real GDP
RGDP1
RGDP2
RGDP3
RGDP4
RGDP5 FE
RGDP
This will continue over a range of RGDP production…UNTIL….

13. LRAS Price Level PL2 PL1 Real GDP
RGDP1
RGDP2
RGDP3
RGDP4
RGDP5
RGDP6 FE
RGDP
…We reach RGDP6…Notice that NOW the Price Level INCREASES to PL2…As we move closer to FE RGDP we are getting to LOWER levels of Unemployment and are using more input resources so now these limited resources are beginning to become MORE scarce. When inputs and wages start to rise, what happens to the Cost of Production?? INCREASES…

14. LRAS Price Level PL3 PL2 PL1 Real GDP
RGDP1
RGDP2
RGDP3
RGDP4
RGDP5
RGDP6
RGDP7 FE
RGDP
Producers need to get a higher price to reflect the increasing input costs. The Producers will INCREASE the Quantity Supplied of RGDP when the Price Level INCREASES…

15. THIS POINT IS VERY IMPORTANT!!!!
LRAS
Price Level
PL4
PL3
PL2
PL1
Real GDP
RGDP1
RGDP2
RGDP3
RGDP4
RGDP5
RGDP6
RGDP7 FE
RGDP
RGDP8
THIS POINT IS VERY IMPORTANT!!!!

16. LRAS Price Level PL4 PL3 PL2 PL1 Real GDP
RGDP1
RGDP2
RGDP3
RGDP4
RGDP5
RGDP6
RGDP7 FE
RGDP
RGDP8
At this point, ACTUAL RGDP is EQUAL to POTENTIAL RGDP…This economy’s ability to Produce RGDP in the SHORT RUN is now EQUAL to the Economy’s ability to Product RGDP in the LONG-RUN…

17. What about this NEXT point? Can our economy produce at this point?
LRAS
Price Level
PL5
PL4
PL3
PL2
PL1
Real GDP
RGDP1
RGDP2
RGDP3
RGDP4
RGDP5
RGDP6
RGDP7 FE
RGDP
RGDP9
RGDP8
What about this NEXT point? Can our economy produce at this point?

18. LRAS Price Level PL5 PL4 PL3 PL2 PL1 Real GDP
RGDP1
RGDP2
RGDP3
RGDP4
RGDP5
RGDP6
RGDP7 FE
RGDP
RGDP9
IN THE SHORT RUN it can, but it will NOT be sustainable…Now Unemployment is BELOW the Natural Rate of Unemployment and Inputs are very scarce. The pressure on wages will INCREASE. The economy is up against a wall. There will not be any increase in Quantity Supplied at this point.
RGDP8

19. LRAS Price Level PL5 PL4 PL3 PL2 PL1 Real GDP
RGDP1
RGDP2
RGDP3
RGDP4
RGDP5
RGDP6
RGDP7 FE
RGDP
RGDP9
RGDP8
This Range of the SHORT RUN AGGREGATE SUPPLY CURVE is called the INTERMEDIATE RANGE…

20. LRAS Price Level PL6 PL5 PL4 PL3 PL2 PL1 Real GDP
RGDP1
RGDP2
RGDP3
RGDP4
RGDP5
RGDP6
RGDP7 FE
RGDP
RGDP9
RGDP8
We have reach the END of this economy’s ability to Produce RGDP….The SHORT RUN AGGREGATE SUPPLY CURVE Becomes VERTICAL and Parallels the LRAS CURVE…

21. Classical and Keynesian Range mean later….
LRAS
Price Level
PL7
SRAS
Classical Range
PL6
PL5
PL4
PL3
PL2
PL1
Real GDP
RGDP1
RGDP2
RGDP3
RGDP4
RGDP5
RGDP6
RGDP7 FE
RGDP
RGDP9
RGDP8
The VERTICAL RANGE of the SRAS Curve is called the Classical Range…More on what the
Classical and Keynesian Range mean later….

22. Classical Range LRAS Price Level PL7 SRAS PL6 PL5 PL4 PL3 PL2 PL1
Real GDP
RGDP1
RGDP2
RGDP3
RGDP4
RGDP5
RGDP6
RGDP7 FE
RGDP
RGDP9
RGDP8
Let’s take away all the “stuff” and see what we are left with….

23. LRAS Price Level SRAS Real GDPFE
RGDP
This is how I like to represent the “SUPPLY-SIDE” of the Economy. There are 3 distinct sections to the SRAS curve and it extends beyond the LRAS curve and then becomes vertical again….This just shows that an economy CAN produce beyond it productive capacity, but does so at it’s peril…Now we will insert an Aggregate Demand Curve and start with serious analysis on the economy.

24. Aggregate Supply (AS) Shifters Changes in spending not caused by Price Level
Changes in INPUT prices for land, labor, capital, and entrepreneurship
THE FACTORS OF PRODUCTION
1. Before the Change
2. The change
3. After the change
Change in Market Power (unions, presence of monopolies)
Change in Productivity
Change in Government policies – business taxes, subsudies, regulations
Change in value of currency
(AS)
Price Level
GDP
(AS)
Price Level
GDP
(AS)
Price Level
GDP
(AS)
Price Level
GDP

25. Aggregate Demand /Aggregate Supply
Price Level
SRAS
SRAS1
Real GDP
Unions grow more aggressive; wage rate increases.

26. Aggregate Demand /Aggregate Supply
Price Level
SRAS
SRAS1
Real GDP
OPEC successfully increases oil price

27. Aggregate Demand /Aggregate Supply
Price Level
SRAS
SRAS1
Real GDP
Labor productivity increases dramatically

28. Aggregate Demand /Aggregate Supply
Price Level
SRAS
SRAS1
Real GDP
Giant natural gas discovery decreases energy prices.

29. Aggregate Demand /Aggregate Supply
Price Level
SRAS
SRAS1
Real GDP
Computer technology brings new levels of efficiency to industry.

30. Aggregate Demand /Aggregate Supply
Price Level
SRAS
SRAS1
Real GDP
Research shows that improved schools have increased the skills of American workers and managers.

31. Aggregate Demand /Aggregate Supply
Price Level
SRAS
SRAS1
Real GDP
Government increases regulation of industry to address pollution problem

32. Aggregate Demand /Aggregate Supply
Price Level
SRAS
SRAS1
Real GDP
The dollar depreciates in foreign exchange markets

33. Aggregate Demand /Aggregate Supply
Price Level
SRAS
SRAS1
Real GDP
President announces cuts in farm and business subsidies.

34. Aggregate Demand /Aggregate Supply
Price Level
SRAS
SRAS1
Real GDP
Business taxes fall.

35. Aggregate Demand /Aggregate Supply
Price Level
SRAS
SRAS1
Real GDP
New low-cost means of extracting oil from shale is discovered

36. Introduction to Aggregate DemandAD
GDP
Price Level

37. Why is Aggregate Demand Curve Downward SlopingAD
GDP
Price Level
According to the AD curve, what is the relationship between Price Level and Real GDP?
There is an inverse relationship; the lower the price level, the higher the Real GDP or real output.

38. Why is Aggregate Demand Curve Downward SlopingAD
GDP
Price Level
Explain how each of the following effects helps explain why the AD curve is downward sloping?
Interest Rate Effect
A lower price level decreases the demand for money, which decreases the interest rate and increases investment and interest sensitive components of consumption and, therefore, Real GDP or real output.

39. Why is Aggregate Demand Curve Downward SlopingAD
GDP
Price Level
Wealth Effect or Real Balance Effect
As the price level falls, cash balances will buy more so people will spend more, thus increasing Real GDP or Real Output.

40. Why is Aggregate Demand Curve Downward SlopingAD
GDP
Price Level
Net Export or International Trade Effect
A lower U.S. price level means prices for goods produced in the U.S. are lower relative to the prices in foreign countries. Thus people will buy more U.S. produced goods and fewer foreign produced goods. This increases net exports, a component of GDP

41. Aggregate Demand (AD) Shifters Changes in spending not caused by Price Level
1. Before the Change
2. The change
3. After the change
Change in Net Exports (Nx) caused by a change in national income abroad, or exchange rate of money
Change in Government (G) spending
Change in Investment (I) caused by a change in interest rates, profit expectations, business taxes, technology, or excess capacity
Change in consumer spending (C) caused by a change in wealth, expectations, indebtedness, personal taxes Pl Pl
Price Level
Price Level
(AD)
(AD)
GDP
GDP
Price Level
(AD)
GDP
Price Level
(AD)
GDP
Price Level
(AD)
GDP

42. Bottom Line of Aggregate Demand (AD)
Aggregate Demand is driven by the Components of GDP
AD = C + I + G + N(x)
When one of these variables change, either positively or negatively (increase or decrease), AD curve will move right or left

43. Aggregate Demand Shifts
In the slides that follow, read the situation and determine if it causes an increase, decrease or no change in AD.
DO NOT CLICK ON THE YELLOW BARS. They are hot linked and will take you to a different part of the PPT. Just choose in your mind the direction you think AD will shift

44. Situation: Congress cuts taxes.
Price
Level
A B C
Increase AD
Decrease AD AD
No Change in AD AD AD
Real GDP
Always start at curve B. Click the correct curve to go to the next slide.

45. Situation: Investment spending decreases.
Price
Level
A B C
Increase AD
Decrease AD AD
No Change in AD AD AD
Real GDP
Always start at curve B. Click the correct curve to go to the next slide.

46. Situation: Government spending increases; President promises no tax increases.
Price
Level
A B C
Increase AD
Decrease AD AD
No Change in AD AD AD
Real GDP
Always start at curve B. Click the correct curve to go to the next slide.

47. Situation: Survey shows consumer confidence jumps.
Price
Level
A B C
Increase AD
Decrease AD AD
No Change in AD AD AD
Real GDP
Always start at curve B. Click the correct curve to go to the next slide.

48. Situation: Stock market collapses; investors lose billions.
Price
Level
A B C
Increase AD
Decrease AD AD
No Change in AD AD AD
Real GDP
Always start at curve B. Click the correct curve to go to the next slide.

49. Situation: Productivity rises for the fourth straight year.
Price
Level
A B C
Increase AD
Decrease AD AD
No Change in AD AD AD
Real GDP
Always start at curve B. Click the correct curve to go to the next slide.

50. Situation: President/Congress cut defense spending by 20 percent; no increase in domestic spending.
Price
Level
A B C
Increase AD
Decrease AD AD
No Change in AD AD AD
Real GDP
Always start at curve B. Click the correct curve to go to the next slide.

51. Situation: Consumer indebtedness rises.
Price
Level
A B C
Increase AD
Decrease AD AD
No Change in AD AD AD
Real GDP
Always start at curve B. Click the correct curve to go to the next slide.

52. Situation: Dollar appreciates in foreign exchange markets.
Price
Level
A B C
Increase AD
Decrease AD AD
No Change in AD AD AD
Real GDP
Always start at curve B. Click the correct curve to go to the next slide.

53. Situation: Business profit expectations fall.
Price
Level
A B C
Increase AD
Decrease AD AD
No Change in AD AD AD
Real GDP
Always start at curve B. Click the correct curve to go to the next slide.

54. Situation: The price of imported resources skyrockets.
Level
A B C
Increase AD
Decrease AD AD
No Change in AD AD AD
Real GDP
Always start at curve B. Click the correct curve to go to the next slide.

55. Situation: Consumers expect the price level to rise.
A B C
Increase AD
Decrease AD AD
No Change in AD AD AD
Real GDP
Always start at curve B. Click the correct curve to go to the next slide.

56. Situation: Consumer wealth plummets as stock prices fall.
Level
A B C
Increase AD
Decrease AD AD
No Change in AD AD AD
Real GDP
Always start at curve B. Click the correct curve to go to the next slide.

57. Situation: Excess plant capacity decreases significantly.
Price
Level
A B C
Increase AD
Decrease AD AD
No Change in AD AD AD
Real GDP
Always start at curve B. Click the correct curve to go to the next slide.

58. Situation: Interest rates rise.
Price
Level
A B C
Increase AD
Decrease AD AD
No Change in AD AD AD
Real GDP
Always start at curve B. Click the correct curve to go to the next slide.

59. Situation: Foreign incomes fall.
Price
Level
A B C
Increase AD
Decrease AD AD
No Change in AD AD AD
Real GDP
Always start at curve B. Click the correct curve to go to the next slide.

60. Situation: Dollar value depreciates in foreign exchange markets.
Price
Level
A B C
Increase AD
Decrease AD AD
No Change in AD AD AD
Real GDP
Always start at curve B. Click the correct curve to go to the next slide.

61. PL1 LRAS SRAS Price Level Real GDP Unemployment Rate 15%(?)
This AD/AS Model of the Economy shows an economy in TROUBLE…Aggregate Demand is intersecting Aggregate Supply on the HORIZONTAL section of SRAS...This economy is in a SEVERE RECESSON boardering on a DEPRESSION.
PL1
AD1 FE
RGDP
RGDP1
Real GDP
Unemployment Rate
15%(?)

62. PL1 LRAS SRAS Price Level
This means it is currently producing a RGDP that is WAY inside its ability to produce RGDP .
PL1
AD1 FE
RGDP
RGDP1
Real GDP
A VERY large Recessionary Gap
Unemployment Rate
15%(?)

63. PL1 LRAS SRAS Price Level Real GDP
AD1
AD2
PL1 FE
RGDP
RGDP1
RGDP2
Real GDP
Aggregate Demand INCREASES from AD1 to AD2
Still a LARGE Recessionary Gap
But not a large as before
Unemployment Rate
10%(?)

64. PL1 LRAS SRAS Price Level Real GDP
AD3
AD1
AD2
PL1 FE
RGDP
RGDP1
RGDP2
RGDP3
Real GDP
Aggregate Demand INCREASES from AD2 to AD3
The Recessionary Gap
Is shrinking…
Unemployment Rate
8%(?)

65. PL1 LRAS SRAS Price Level
As AD INCREASES from AD1 to AD3 the economy is INCREASING it’s RGDP but the Price Level is NOT INCREASING….WHY????
AD3
AD1
AD2
PL1 FE
RGDP
RGDP1
RGDP2
RGDP3
Real GDP
Aggregate Demand INCREASES from AD2 to AD3
The Recessionary Gap
Is shrinking…

66. PL1 LRAS SRAS Price Level
Between RGDP1 and RGDP3 there are lots of under-employed resources ( excess inventories) AND PEOPLE---Unemployment is very high..When unemployment and Inventories are high there is little to NO pressure on prices to increase because there is plenty of “slack resources”. Even though RGDP is Increasing the is no upward pressure on the Price Level over this range of RGDP.
AD3
AD1
AD2
PL1 FE
RGDP
RGDP1
RGDP2
RGDP3
Real GDP
Aggregate Demand INCREASES from AD2 to AD3
The Recessionary Gap
Is shrinking…

67. PL1 LRAS SRAS Price Level
BUT….the story changes as the economy moves to AD4 . RGDP INCREASES but so does the PRICE LEVEL….As we approach Full-Employment (closer to where SRAS intersects LRAS) the economy has FEWER slack resources (inventories are decreasing) AND Unemployment is DECREASING more rapidly…There is INCREASING pressure on the PRICE LEVEL to INCREASE…
AD3
AD1
AD2
PL2
PL1
AD4
RGDP4 FE
RGDP
RGDP1
RGDP2
Real GDP
RGDP3
Recessionary Gap
Unemployment Rate
7%(?)

68. PL1 LRAS SRAS Price Level
This is NOT dangerous for the Economy at this point…Actually it can be quite healthy…Increasing prices are GOOD for Business and Increasing wages are GOOD for Workers…
AD3
AD1
AD2
PL2
PL1
AD4
RGDP4 FE
RGDP
RGDP1
RGDP2
Real GDP
RGDP3
Recessionary Gap

69. PL1 LRAS SRAS Price Level
As a matter of fact, when AD5 intersects SRAS and LRAS the Economy is considered to be at FULL-EMPLOYMENT---The Sweet Spot for this economy…The total demand for goods and services EQUALS the economy’s ability to produce those goods and services in the Short Run (SRAS) AND the Long Run (LRAS)
AD3
PL3
AD1
AD2
PL2
PL1
AD5
AD4
RGDP4 FE
RGDP
RGDP1
RGDP2
Real GDP
RGDP3
RGDP5
Unemployment Rate
5%(?)=NRU

70. PL1 LRAS SRAS Price Level
At FULL-EMPLOYMENT we have eliminated the Recessionary Gap. A couple of KEY points about this Equilibrium:
The economy is at its Natural Rate of Unemployment (Frictional + Structural) with NO cyclical unemployment
AD3
PL3
AD1
AD2
PL2
PL1
AD5
AD4
RGDP4 FE
RGDP
RGDP1
RGDP2
Real GDP
RGDP3
RGDP5

71. “NON-ACCCELERATING INFLATION RATE OF UNEMPLOYMENT
LRAS
SRAS
At FULL-EMPLOYMENT we have eliminated the Recessionary Gap. A couple of KEY points about this Equilibrium:
2. The Economy is at its:
“NON-ACCCELERATING INFLATION RATE OF UNEMPLOYMENT
(NAIRU)
Fancy way of saying we are “Inflation Neutral” at the Natural Rate of Unemployment
(NRU)
Price
Level
AD3
PL3
AD1
AD2
PL2
PL1
AD5
AD4
RGDP4 FE
RGDP
RGDP1
RGDP2
Real GDP
RGDP3
RGDP5

72. PL1 LRAS SRAS Price Level
If the AD shifts to AD6 the economy has now gone beyond FULL-EMPLOYMENT and is now producing RGDP6 . The unemployment rate is now something LESS than the NRU (wages will start to increase faster)…The Economy is starting to overheat !(Demand for goods and services is GREATER than the economy’s ability to produce goods and services!...
PL4
Inflationary
Gap
AD3
PL3
AD1
AD2
AD6
PL2
PL1
AD5
AD4
RGDP4 FE
RGDP
RGDP6
RGDP1
RGDP2
Real GDP
RGDP3
RGDP5
Unemployment Rate
3%-- less than theNRU

73. LRAS
SRAS
If AD increases to AD7 then we have a LARGE increase in PRICE LEVEL with NO increase in RGDP (RGDP7 = RGDP6 ) This economy is in TROUBLE---INFLATION Is the Problem of the Day….
Price
Level
PL5
Inflationary
Gap
PL4
AD7
AD3
PL3
AD1
AD2
AD6
PL2
PL1
AD5
AD4
RGDP4 FE
RGDP
RGDP6
RGDP1
RGDP2
Real GDP
RGDP3
RGDP5
RGDP7

75. Aggregate Demand /Aggregate Supply
Price Level
LRAS
SRAS
What happened to:
Price Level INC DEC
RGDP INC DEC
Unemployment INC DEC
PL1
PL*
AD1 AD Fe
RGDP
RGDP1
Real GDP

76. Aggregate Demand /Aggregate Supply
Price Level
LRAS
SRAS
What happened to:
Price Level INC DEC
RGDP INC DEC
Unemployment INC DEC
PL*
PL1 AD
AD1
RGDP1 Fe
RGDP
Real GDP

77. STAGFLATION Aggregate Demand /Aggregate Supply Price Level LRAS SRAS
What happened to:
Price Level INC DEC
RGDP INC DEC
Unemployment INC DEC
PL1
PL*
STAGFLATION AD
RGDP1 Fe
RGDP
Real GDP

78. Aggregate Demand /Aggregate Supply
Price Level
LRAS
SRAS
SRAS1
What happened to:
Price Level INC DEC
RGDP INC DEC
Unemployment INC DEC
PL*
PL1 AD Fe
RGDP
RGDP1
Real GDP

79. Equilibrium in the AD-AS Model
Directions for the next set of slides: Analyze the situation or event and determine the effect on AD or short run AS. Shift the appropriate curve and determine change in PL, Real GDP and Unemployment.

80. Aggregate Demand /Aggregate Supply
Price Level
LRAS
SRAS
What happened to:
Price Level INC DEC
RGDP INC DEC
Unemployment INC DEC
PL1
PL*
AD1 AD Fe
RGDP
RGDP1
Real GDP
Congress passes a tax cut for the middle class, and the president signs it.

81. Aggregate Demand /Aggregate Supply
Price Level
LRAS
SRAS
SRAS1
What happened to:
Price Level INC DEC
RGDP INC DEC
Unemployment INC DEC
PL*
PL1 AD Fe
RGDP
RGDP1
Real GDP
New oil discoveries cause large decreases in oil prices

82. Aggregate Demand /Aggregate Supply
Price Level
LRAS
SRAS
What happened to:
Price Level INC DEC
RGDP INC DEC
Unemployment INC DEC
PL1
PL*
AD1 AD Fe
RGDP
RGDP1
Real GDP
The government increases spending on schools, highways, and other public works

83. STAGFLATION Aggregate Demand /Aggregate Supply Price Level LRAS SRAS
What happened to:
Price Level INC DEC
RGDP INC DEC
Unemployment INC DEC
PL1
PL*
STAGFLATION AD
RGDP1 Fe
RGDP
Real GDP
Production costs increase nationwide

84. Aggregate Demand /Aggregate Supply
Price Level
LRAS
SRAS
SRAS1
What happened to:
Price Level INC DEC
RGDP INC DEC
Unemployment INC DEC
PL*
PL1 AD Fe
RGDP
RGDP1
Real GDP
New technology and better education increase productivity.

85. Aggregate Demand /Aggregate Supply
Price Level
LRAS
SRAS
What happened to:
Price Level INC DEC
RGDP INC DEC
Unemployment INC DEC
PL1
PL*
AD1 AD Fe
RGDP
RGDP1
Real GDP
A new president makes consumers and businesses more confident about the future economy

86. Aggregate Demand /Aggregate Supply
Price Level
LRAS
SRAS
What happened to:
Price Level INC DEC
RGDP INC DEC
Unemployment INC DEC
PL1
PL*
AD1 AD Fe
RGDP
RGDP1
Real GDP
With the unemployment rate at five percent, the federal government reduces personal taxes and increases spending

87. Aggregate Demand /Aggregate Supply
Price Level
LRAS
SRAS
What happened to:
Price Level INC DEC
RGDP INC DEC
Unemployment INC DEC
PL1
PL*
AD1 AD Fe
RGDP
RGDP1
Real GDP
Foreign incomes increase

88. Aggregate Demand /Aggregate Supply
Price Level
LRAS
SRAS
What happened to:
Price Level INC DEC
RGDP INC DEC
Unemployment INC DEC
PL*
PL1 AD
AD1
RGDP1 Fe
RGDP
Real GDP
Excess plant capacity increases.

89. Aggregate Demand /Aggregate Supply
Price Level
LRAS
SRAS
SRAS1
What happened to:
Price Level INC DEC
RGDP INC DEC
Unemployment INC DEC
PL*
PL1 AD Fe
RGDP
RGDP1
Real GDP
Dollar appreciates; relative prices of imported resources fall.

90. Aggregate Demand /Aggregate Supply
Price Level
LRAS
SRAS
What happened to:
Price Level INC DEC
RGDP INC DEC
Unemployment INC DEC
PL*
PL1 AD
AD1
RGDP1 Fe
RGDP
Real GDP
Consumer indebtedness increases; consumption falls

91. Aggregate Demand /Aggregate Supply
Price Level
LRAS
SRAS
What happened to:
Price Level INC DEC
RGDP INC DEC
Unemployment INC DEC
PL*
PL1 AD
AD1
RGDP1 Fe
RGDP
Real GDP
Interest rates rise; business investment falls.

92. Aggregate Demand /Aggregate Supply
Price Level
LRAS
SRAS
SRAS1
What happened to:
Price Level INC DEC
RGDP INC DEC
Unemployment INC DEC
PL*
PL1 AD Fe
RGDP
RGDP1
Real GDP
A new administration increases subsidies to businesses.

93. Aggregate Demand /Aggregate Supply
Price Level
LRAS
SRAS
What happened to:
Price Level INC DEC
RGDP INC DEC
Unemployment INC DEC
PL1
PL*
AD1 AD Fe
RGDP
RGDP1
Real GDP
Promising research increases business profit expectations.