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ECO100Y1 (431)
Jack Carr (32)

Aggregat demand SR

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University of Toronto St. George
Jack Carr

Aggregate Demand Supply in Short run Relationship btw Price Level and GDP most important in Macro Derive AD from impact on AE of changes in Price Level then examine short and long-run AS and EQB Aggregate Demand Relationship btw price lvl and EQB GDP o Simply AE in eqb with a price variable P lvl decreases eqb GDP and vice versa but does not change AD Derivation: o From effect of Price changes on components (C, I, and X-IM) of AEIgnore Gov spending due to its political motivation Consumption (Wealth affect) P lvl causes fixed wealth thus an increase in P lvl decreases Autonomous Consumption at given levels of income P lvl causes C shift down, vice versa Investment (Intersect effect) P lvl increases Money Demand by increasing Nominal income. The increase in Money Demand increases interest rate which dicreases real investment Inversely related to P lvl Net Exports (Relative Price affect) domestic P implies increase in domestic P relative to foreign P o Therefore lower competitiveness of exports and greater competitiveness of imports. Net exports fall (IM, X) Inversely related to P lvl
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