1 / 10

ECN 202: Principles of Macroeconomics Nusrat Jahan Lecture-9

ECN 202: Principles of Macroeconomics Nusrat Jahan Lecture-9. Aggregate Demand and Aggregate Supply. There is a very close relationship between Income, Consumption and Saving. Saving = Income-Consumption

chavi
Download Presentation

ECN 202: Principles of Macroeconomics Nusrat Jahan Lecture-9

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. ECN 202: Principles of MacroeconomicsNusrat JahanLecture-9 Aggregate Demand and Aggregate Supply

  2. There is a very close relationship between Income, Consumption and Saving. • Saving = Income-Consumption • To understand the way Consumption and Saving affects National Income we need to understand the following tools- • Consumption Function • Saving Function

  3. Consumption Function: • Consumption Function is the relationship between Income and Consumption • Break-even Point- It is the level of income for which Income=Consumption • Non-Income Determinants of Consumption • Wealth • Expectation about Inflation • Real Interest Rate • Savings Function: • Savings Function is the relationship between Income and Saving. It can be derived from the Consumption Function

  4. Marginal Propensity to Consume (MPC): The extra amount that people consume when they receive an extra dollar of disposable income. • Marginal Propensity to Save (MPS): The fraction of an extra dollar of disposable income that goes to extra saving. • MPC + MPS = 1 • Average Propensity to Consume (APC): The percentage of income spent. • Average Propensity to Save (APS): The percentage of Income saved. • APC + APS = 1

  5. The Basic Model of Economic Fluctuations Aggregate Demand and Aggregate Supply • Two variables are used to develop a model to analyze the short-run fluctuations. • The economy’s output of goods and services measured by real GDP. • The overall price level measured by the CPI or the GDP deflator. • Economists use the model of aggregate demand and aggregate supply to explain short-run fluctuations in economic activity around its long-run trend.

  6. The aggregate-demand curve shows the quantity of goods and services that households, firms, and the government want to buy at each price level. • The aggregate-supply curve shows the quantity of goods and services that firms choose to produce and sell at each price level. • The Aggregate Demand Curve • The four components of GDP (Y) contribute to the aggregate demand for goods and services. • Y = C + I + G + NX

  7. Why the Aggregate Demand Curve might shift? • Shifts arising from • Consumption • Investment • Government Expenditure • Net Export • Why the Short-Run Aggregate-Supply Curve Might Shift •  Labor •  Capital •  Natural Resources. •  Technology. •  Expected Price Level P AD’ AD AD” Y AS’ AS AS”

  8. Two Causes of Economic Fluctuations •  Shift in Aggregate Demand •  Shift in Aggregate Supply

More Related