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REVIEW: With your partner answer the following questions…

REVIEW: With your partner answer the following questions…. What is the difference between Micro & Macro Economics? 2) What is ‘Supply’? 3) Whose perspective is it from? 4) What are the 3 Determinants of Supply?

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REVIEW: With your partner answer the following questions…

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  1. REVIEW: With your partner answer the following questions… What is the difference between Micro & Macro Economics? 2) What is ‘Supply’? 3) Whose perspective is it from? 4) What are the 3 Determinants of Supply? 5) Does the ‘Supply’ we’ve studied so far demonstrate a Micro or Macro example of economics?

  2. Use the dictionary and textbook (p. 344) to define the following • Aggregate • Aggregate Output (AO) • Price Level (PL) • Aggregate Demand (AD) • Aggregate Demand Curve • Aggregate Supply (AS) • Aggregate Supply Curve

  3. Aggregate • collection of items that are gathered together to form a total quantity. It may refer also to:

  4. Aggregate Output • Total amount of goods and services in the economy during a given period = same as Real GDP = same as Output/Employment (O/E)

  5. Price Level • Average price of aggregate output • = supply & demand of the total measure of output

  6. Aggregate Demand • Sums up the demands of households, firms, government and the rest of the world

  7. Aggregate Demand Curve • The total output of the economy and PL are determined at the intersection of the AD & AS curves. • The equilibrium reflects Real GDP and the PL

  8. Aggregate Supply • How much output U.S. producers are willing and able to sell at each price level • Inverse relationship => As PL goes up, O/E goes down and vice versa.

  9. Aggregate Supply Curve {Also called “Output to Employment” [O/E]}

  10. Starting Point of AS: PL AS A PL1 AD O/E1 O/E

  11. Increase in AS: PL AS AS2 A PL: _______ O/E: _______ PL1 B PL2 O/E2 O/E1 O/E

  12. Decrease in AS: AS2 PL AS B PL2 A PL: _______ O/E: _______ PL1 O/E2 O/E1 O/E

  13. DETERMINANTS OF AGGREGATE SUPPLY • Resource Prices • Productivity • Production Technology • Government Taxes and Regulations

  14. The Four Determinants of AS • Draw the following chart and based on the definition of each determinant figure out what would cause an increase and a decrease in AS for each. • Do this with your partner!

  15. Complete the following scenarios with your partner by answering the following questions: 1. What happens to AS – does it increase or decrease? 2. Based on which determinant? 3. Which way does the graph shift? 4. What happens to PL? 5. What happens of O/E? 6. Draw the graph.

  16. 1.The auto industry is experiencing an increase in the price of steel. Using AD/AS analysis, show the effects of aggregate supply, prices and output/employment. Complete the following scenarios with your partner:

  17. 2. Labor productivity in the U.S. is on the rise. Graph the situation and show how aggregate supply, prices and output/employment are affected. Shift the AS curve?

  18. 3. Improved technology has been developed in the U.S. computer industry. Graph the situation and show how aggregate supply, prices and output/employment are affected. Shift the AS curve?

  19. 4. New government regulations have been passed by Congress to improve the safety of SUVs. Graph the situation and show how aggregate supply, prices and output/employment are affected. Shift the AS curve?

  20. 5. Labor productivity in the computer industry has been rising at a faster rate than worker’s wages. Graph the situation and show how aggregate supply, prices and output/employment are affected. Shift the AS curve?

  21. Wrap-Up • What are the three ranges of AS? • In which range is the economy the best? The worst? Explain why. • What is aggregate output? • What is price level? • What are two other ways to say Output/Employment? • What are the four determinants of AS? • What causes an increase in AS? A decrease?

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