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Study Guide

EC140- Final Exam Guide - Comprehensive Notes for the exam ( 26 pages long!)


Department
Economics
Course Code
EC140
Professor
Ken Jackson
Study Guide
Final

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WLU
EC140
Final EXAM
STUDY GUIDE

Only pages 1-3 are available for preview. Some parts have been intentionally blurred.

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EC140 chapter 23 lecture 8
How do prices affect consumption?
o Rise in prices
Microeconomics quantity demand falls
Macroeconomics money that people hold can buy fewer goods, people are
effectively poorer-consumption falls
o Fall in prices
Value of money held goes up
Consumption rises
Aggregate Expenditure and Prices
o As prices rise the AE goes down
o Everything is moving in the same direction
o The whole AE shifts
What is an Aggregate demand curve?
o Y-axis price level, x-axis real GDP
o AD curve shows level of real GDP for each price level where desire aggregate
expenditure equals actual GDP
o Equilibrium output from the simple macro model for each price level
o Changes is price level cause
shifts of the AE curve, movement along the AD curve
o If we change prices that causes the shift along the AE curve
Why is the AD curve downward sloping?
o As prices rise:
People are poorer, consumption falls
Foreign goods are relatively cheaper, imports rise
Exports fall
o All 3 changes mean that as prises rise, real GDP falls
Move up and left along the AD curve
Shifting the AD curve
o If AE shifts up, AD increases, and the AD curve shifts right
Increase in income in export markets
Increase in business/consumer optimism
Increase in government spending
Any other shift of AE leads to a shift in AD curve
Simple multiplier
o The change in autonomous spending time the multiplier
o If AE shift up, real GDP increases, equilibrium income increases, rightward shift to AD
curve
o Decrease in AD is rightward shift
o Change in Canadian prices will move along the curve
o Change in foreign prices change the curve
Why is the AS curve upward sloping?
o Increasing production may cause increase in costs
o Many firms face diminishing returns to scale
o Production constrains often minor when output is low
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o As output rises, constraints bind
o Companies move to costlier methods to increase output
o The slope
Shifting the AS curve
o Assumptions -> constant technology, input prices
o Technology improves AS moves right and down
o Deterioration in technology moves the curve left and up
Weather shock, negative government regulation
o Wages (input price) rise, the AS curve shifts to the left
Macroeconomic Equilibrium
o If you start in the middle the government spending will not be affecting majorly
o Combination of the price level and real GDP where demand equals supply
Desired expenditure equals output
AS curve ensures firms want to produce the same level of output
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