1. Economic Fluctuations Aggregate Demand & Supply

2. Aggregate Demand and Real Expenditures Aggregate Demand: The relationship between the general price level and total spending in the economy. Real Expenditures: Total spending in an economy adjusted for changes in price level. GDP Deflator: an indicator of price changes for all goods and services produced in the economy.

3. Aggregate Demand Curve Aggregate Demand Schedule: The relationship between the general price level and total spending in the economy expressed in a table.

4. Aggregate Demand Determined by two factors. – Wealth: Assets people own. Determined by Real Value of Assets= Nominal Value/price level. When the price rises the value of assets decreases. Called the Wealth Effect. – Foreign Trade: Changes in price level influences foreign trade. Gets higher trade goes down.

5. Changes in Aggregate Demand There are Aggregate Demand Factors that shift the whole curve. This will cause either a increase or decrease in aggregate demand.

6. Changes These changes are caused by – Consumption Disposable Income Wealth Consumer Expectation Interest Rate – Investment Interest Rates Business Expectations Government Purchases Net Exports- Foreign Incomes & Exchange Rates

7. Aggregate Supply Aggregate Supply: the relationship between the general price level and real output produced in the economy. Aggregate Supply Schedule: the relationship between the general price level and real output expressed in a table.

8. Aggregate Supply Curve This determines the amount of output a country produced depending on their employment in compared with Full Employment.

9. Aggregate Supply Factors There are factors that shift the whole supply curve. These are: – Input Prices – Resource Prices – Productivity – Government Policies

10. Equilibrium (again….) Economy’s equilibrium price level of real output occurs at intersection of AD & AS Represents Willingness consumers will buy and businesses supply.

11. The Leaky Bucket Example simple bucket – a model of how an economy functions simple economy I – all consumption (C) is spent by businesses on productive resources simple economy II, with savings (S) – leakage from bucket of savings simple economy III, with savings, and investment (I) – injection of investment offsets the leakage of savings

12. The Leaky Bucket causes of changes in savings – influenced by income and spending patterns causes of changes in investment – future expectations, interest rates 1.S = I  Equilibrium and stability 2.S leakages 3.S > I  Contracting economy as leakages > injections

13. The Leaky Bucket simple economy IV, with government injections – injection of government spending (G) is offset by leakage taxation (T) simple economy V, with foreign trade – injection of exports (X) make up 25% of Canadian income and are offset by leakage of imports (M) which are directly related to income levels

14. The Leaky Bucket Summary 1.M + T + S = X + G + I  Equilibrium and stability 2.M + T + S leakages 3.M + T + S > X + G + I  Contracting economy as leakages > injections

15. The Leaky Bucket

16. Demand-Pull Inflation If full employment exists (full bucket) and injections (X + I + G) > leakages M + S + T) then no more goods & services can be produced, only prices will rise (inflation, water spilling out of the bucket) Demand for goods & services > quantity of goods & services pulls up prices

17. Economic Growth When GDP increases and potential output increases. – Determined by Labour Productive=Real Output/Total Hours work.

18. Business Cycle