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ECON 2010 Prin Macroeconomics Chapter 13 Notes

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ECON 2010
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1Chapter 13 NotesIAggregate SupplyDemandaAggregate demand was driven by aggregate supply as it reacts to different price levelsbAggregate supply will demonstrate levels of supply at those same price levelscThe initial graph will relate aggregate demand a short run consideration in itselfaggregate supply in the short run SRASdLater the long run LRAS will be added to the analysisIIAggregate DemandaAggregate demandaggregate supply modela model that explains shortrun fluctuations in real GDPthe price levelbWhy is the aggregate demand curve downward slopingiGDP has four components consumption C investment I government purchases Gnet exports NXRecall letting YGDP then YCIGNXiiThe wealth effect how a change in the price level affects consumption1The phenomenon of price level fluctuations affecting consumption is called the wealth effectLower prices increases perceived wealthincreases consumptionHigher prices has the reverse effectiiiThe interestrate effect how a change in the price level affects investment1The impact of the price level on investment is known as the interestrate effectivThe internationaltrade effect how a change in the price level affects net exports1The impact of the price level on net exports is known as the internationaltrade effectcShifts of the aggregate demand curve versus movements along itiAn important point to remember is that the aggregate demand curve tells us the relationship between the price levelthe quantity of real GDP demanded holding everything else constantiiThe variables that shifts the aggregate demand curve fall into 3 categories1Changes in government policiesaMonetary policythe actions the Federal Reserve takes to manage the money supplyinterest rates to pursue macroeconomic policy objectivesbFiscal policychanges in federal taxespurchases that are intended to achieve macroeconomic policy objectives such as high employment price stabilityhigh rates of economic growth2Changes in the expectations of householdsfirms2aOptimistic householdsfirms increase consumption whereas pessimistic outlooks cause decreased consumption3Changes in foreign variablesaIf foreign countries buy fewer US goods or if the US buys more foreign goods net exports will fallThe aggregate demand curve will shift to the leftdGovernment can increase or decrease spending G or taxes TeIncreasing spending or decreasing taxes will increase aggregate demand ADMore money is being spent G or is available to be spent less TThe opposite will decrease aggregate demandfThe Federal Reserve can take actions to raise or lower interest ratesIt can also increase or decrease the money supplygLower rates i or increased money supply M will increase investmentspending pushing higher levels of aggregate demandhThe variables that shift the aggregate demand curve
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