Class Notes (839,094)
Canada (511,185)
Economics (1,590)
ECO102H1 (155)

ECO100 - FEB 11 Macro with fixed prices, AD and AS

6 Pages

Course Code
James Pesando

This preview shows pages 1 and half of page 2. Sign up to view the full 6 pages of the document.
1. Macro Model with Fixed Prices ● Studied: ○ Determinants of AE (planned) ■ How do they impact equilibrium level of national income? ○ Autonomous vs induced expenditure ■ irrespective of the national income vs respective ○ The multiplier ■ direct relationship between autonomous expenditure and the equilibrium ■ Small amount of expenditure changing equilibrium ● Implied: ○ Changes in real GDP were determined by changes in AE ○ Equivalently, changes in in Y are “demand determined” ■ What demand is when prices are fixed ○ How demand is impacting our equilibrium ○ In recession, policy should work to increase demand ■ When Y does not equal to Y* ○ There are supply concerns as well ● What if there are resource constraints? (Supply concerns) ○ Not enough capital to achieve Y* ○ What if it is not physically for Y to increase to AE? ○ Must consider the “supply” side of the economy ■ Allow price level to change as well ○ 2. Micro vs. Macro Economics ● Micro ○ How are equilibrium price and output determined? ○ What causes the DD or SS to shift? ○ If DD or SS shifts, what happens? ● Macro ○ How are equilibrium price level and national output determined? ○ What causes the AD or AS to shift? ○ If AD or AS shifts, what happens? ● AD schedule: ○ Shows how desired aggregate expenditures change as the price level changes ○ Represents every point where AE intersects the 45 degree line ● AS schedule: ○ shows how, in the short run, the supply of output changes as the price level changes ■ Assumptions: change in the price aren’t about input prices but output prices ○ 3.Aggregate Demand (AD) &AE 1) ... & the Price level ● AE and AD curves contain the same information, plotted in different spaces ○ People’s different prices and plans: ■ 1) people who have a plan ■ 2) plan given the price level ■ 3) equilibrium level, Y* ● AE: hold fix the price and plot the plan vs equilibrium ● AD: hold fix the the plan and plot prices vs equilibrium ● Changes in the price level shift the AE schedule ○ AE shifts down as P increases ○ AE shifts up as P decreases ○ Purchasing power ● Changes in the price level are movements along the AD schedule ○ AD goes down as P increases ○ AD goes up as P decreases ● Motivation behind the inverse relationship between AD & P (or AE & P), Two channels ○ 1) Relationship between price level and consumption ■ Price level up => wealth(purchasing power) down => Consumption down ● Inflation ■ Household holdings of money [liquid assets] (cash, bank deposits) decline in real terms as price level rises, making households less wealthy ● Money that isn’t earning interests are greatly impacted by inflation ○ 2) Price up => Exports dow
More Less
Unlock Document

Only pages 1 and half of page 2 are available for preview. Some parts have been intentionally blurred.

Unlock Document
You're Reading a Preview

Unlock to view full version

Unlock Document

Log In


Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.