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March 5, 2014

March 5, 2014. Review work from class yesterday Quick AD/AS Shifters Recap AD/AS Equilibrium work. Answer and identify shifter: C.I.G.X or R.A.P. B. A. D. A. D. B. A. A. C. A major increase in productivity. A. 2.

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March 5, 2014

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  1. March 5, 2014 • Review work from class yesterday • Quick AD/AS Shifters Recap • AD/AS Equilibrium work

  2. Answer and identify shifter: C.I.G.X or R.A.P B A D A D B A A C A major increase in productivity. A 2

  3. Putting AD and AS together to getEquilibrium Price Level and Output

  4. AD/AS Model • A correctly labeled AD/AS model... • What happens if Price Level is above equilibrium. • What about below? • What about shifts in either? • ANY TIME GDPR DECREASES, UNEMPLOYMENT INCREASES, AND VICE VERSA. GDPR

  5. Inflationary Gap Output is high and unemployment is less than NRU LRAS Price Level AS Actual GDP above potential GDP PL1 AD1 QY Q1 GDPR 5

  6. Example: Assume the price of oil increases drastically. What happens to PL and Output? LRAS Price Level AS1 AS PL1 Stagflation Stagnate Economy + Inflation PLe AD Q1 QY GDPR 6

  7. Recessionary Gap Output low and unemployment is more than NRU LRAS Price Level AS1 Actual GDP below potential GDP PL1 AD Q1 QY GDPR 7

  8. AD and AS Practice Worksheet 8

  9. How does this cartoon relate to Aggregate Demand? 9

  10. Draw AD and AS at full employment LRAS AS Price Level P2 P1 AD2 AD=C+I+G+X Qf (Y*or FE) Q2 GDPR Output Increases PL Increases 10

  11. Short Run and Long Run 11

  12. Shifts in AD or AS change the price level and output in the short run LRAS Price Level AS PLe AD QY GDPR 12

  13. Example: Assume consumers increase spending. What happens to PL and Output? LRAS Price Level AS PL1 PLe AD1 AD QY Q1 GDPR 13

  14. Now, what will happen in the LONG RUN? Inflation means workers seek higher wages and production costs increase LRAS Price Level AS1 AS PL2 Back to full employment with higher price level PL1 PLe AD1 AD QY Q1 GDPR 14

  15. Example: Consumer expectations fall and consumer spending plummets. What happens to PL and Output in the Short Run and Long Run? Price Level LRAS AS AS1 AS increases as workers accept lower wages and production costs fall PLe PL1 PL2 AD AD AD1 Q1 QY GDPR 15

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