AGGREGATE DEMAND
AD Downward Sloping
· Real –Balance Effect
· Interest Rate Effect
· Foreign Purchase Effect
Aggregate Demand SHIFTERS
· Fiscal policy
· Monetary policy
· Foreign Income Changes
· Exchange rates
· Expectations
· External Shocks (demand side shocks)
OR
· C = Changes in consumer spending
- Consu;mer wealth
- Consumer expectations
- Household indebtedness
- Taxes
· I = Change in Investment spending
- Interest rates
- Expected returns
- Expected future business conditions
- Technology
- Degree of excess capacity
- Business taxes
· G = change in Government spending
· X = Change in net export spending
- National income abroad
- Exchange rates
AGGREGATE SUPPLY
Shape of this curve is in dispute!
2 time periods are important
Long run
Short run
SRAS upward sloping:
· Law of diminishing returns
· Resource bottlenecks
LRAS completely inelastic
Aggregate Supply Shifters – LR & SR
· Productivity Changes
· Inputs Price changes
o Domestic resources
o Price of imported resources
o Market power
· Legal-institutional Environment
o Business taxes and subsidies
o Government Regulations
Short run Aggregate Supply Shifters
· All of the above long run shifters PLUS
· Change in weather
