Presentation is loading. Please wait.

Presentation is loading. Please wait.

Unit 3-5: Aggregate Demand and Supply and Fiscal Policy 1.

Similar presentations


Presentation on theme: "Unit 3-5: Aggregate Demand and Supply and Fiscal Policy 1."— Presentation transcript:

1 Unit 3-5: Aggregate Demand and Supply and Fiscal Policy 1

2 Inflation 2 SRPC Short Run Phillips Curve Unemployment 2%9% 1% 5% When the economy is overheating, there is low unemployment but high inflation When there is a recession, unemployment is high but inflation is low

3 Inflation 3 SRPC Short Run Phillips Curve Unemployment 2%9% 1% 5% What happens when AS falls causing stagflation? Increase in unemployment and inflation SRPC 1

4 Inflation 4 Short Run vs. Long Run Unemployment 2%9% 1% 5% 3% 5% Long Run Phillips Curve In the long run there is no tradeoff between inflation and unemployment The LRPC is vertical at the Natural Rate of Unemployment

5 AD/AS and the Phillips Curve

6 Price Level 6 AD AS AD/AS and the Phillips Curve GDP R QYQY PL e LRAS Inflation SRPC Unemployment UYUY LRPC Show what happens on both graphs if AD increase AD 1

7 Price Level 7 AD AS AD/AS and the Phillips Curve GDP R QYQY PL e LRAS Inflation SRPC Unemployment UYUY LRPC Correctly draw the LRPC and SRPC with the recessionary gap. What happens when AD falls? AD 1

8 Price Level 8 AD AS AD/AS and the Phillips Curve GDP R QYQY PL e LRAS Inflation SRPC Unemployment UYUY LRPC Correctly draw the LRPC and SRPC at full employment. What happens when AS falls? AS 1 SRPC 1

9 Price Level 9 AD AS AD/AS and the Phillips Curve GDP R QYQY PL e LRAS Inflation SRPC Unemployment UYUY LRPC Correctly draw the LRPC and SRPC with an recessionary gap. What happens when AS goes up? AS 1 SRPC 1

10 Analyzing the Economy Graphically 10

11 The Good, the Bad, and the Ugly UnemploymentInflationGDP Growth Good6% or less1%-4%2.5%-5% Worry6.5%-8%5%-8%1%-2% Bad8.5 % or more9% or more.5% or less 11


Download ppt "Unit 3-5: Aggregate Demand and Supply and Fiscal Policy 1."

Similar presentations


Ads by Google