《初级宏观经济学》（英文版）Chapter6 AS AD and Price Adjustment

Chapter 6 Aggregate Supply Aggregate Demand and Price Adjustment 且经济学院1

1 Chapter 6 Aggregate Supply、 Aggregate Demand and Price Adjustment 0 10 20 30 40 90 91 92 93 94 95 96 97 98 99 00

Topics to be Discusses o Aggregate Demand(AD) Function o Aggregate Supply (AS) Function ⊙ AS-AD Model o Price Changes and determination of Output o Price Adjustment Process 友学经济学院

Topics to be Discusses  Aggregate Demand (AD) Function  Aggregate Supply（AS）Function  AS-AD Model  Price Changes and Determination of Output  Price Adjustment Process

6.1 AD Function o Aggregate Demand: the gross demand for production and service under a given price level O AD Function: the relationship between aggregate and price level, or the quantitative relations between general price level and social equilibrium expenditure AD=C+I+G+N 友学经济学院

 Aggregate Demand：the gross demand for production and service under a given price level.  AD Function：the relationship between aggregate and price level，or the quantitative relations between general price level and social equilibrium expenditure. AD =C + I +G + NX 6.1 AD Function

6.1 AD Function AE AEo ⊙ AD Curve 0 0 AEl From the angle of aggregate expenditure: Price is Po, Y Aggregate expenditure is AEo 章 Price is f Aggregate expenditure is AE1 一十一 AD Y1 复具学济器院

6.1 AD Function  AD Curve ❖ From the angle of aggregate expenditure：  Price is P0， Aggregate expenditure is AE0  Price is P1， Aggregate expenditure is AE1 AE E’0 Y Y 0 AE0 AE1 Y0 Y P P0 Y1 Y1 AD P1 E0 E1 O E’1 O

6. 1 AD Function o Why is the AD Curve downward sloping? nterest Effect:P个→Md个→R个→→ AE and y↓ Real Income effect:P↑→Weah→Cand|→AE and Y Taxation Effect:P↑→Wage↑→T个→Yd→Cand|↓ → AE and y↓ Import-and-export:P↑→X,M↑→1→ AE and y↓ 友学经济学院

 Why is the AD Curve downward sloping? ❖ Interest Effect: P Md  R  I  AE and Y  ❖ Real Income Effect: P  Wealth  C and I   AE and Y ❖ Taxation Effect: P  Wage  T  Yd  C and I   AE and Y ❖ Import-and-export: P  X ,M  I   AE and Y  6.1 AD Function

6.1 AD Function: Monetary Policies and AD curve OIncrease nominal money supply at the equilibrium point(rl, y1 OLM Curve shifts down to LM2, and under the same price level Ploutput increases to Y 2 ⊙ AD Curve shifts to Al2 ADI R LM P AD2 RR Y 几大学经济学院

6.1 AD Function：Monetary Policies and AD Curve R Y Y R1 Y1 IS1 P LM1 Y1 AD1 P1 Increase nominal money supply at the equilibrium point (R1, Y1) LM2 1. LM Curve shifts down to LM2，and under the same price level P1output increases to Y2 Y2 R2 Y2 2. 2. AD Curve shifts to AD2 AD2 3

6.1 AD Function: Fiscal policies and ad curves OIncrease government purchase at the equilibrium point(r, YG OIS Curve shifts to IS2 and under the same price level output Increases to Y2 ⊙ AD curve shifts to ad2 ADI R P AD2 PI R R 2 2. Y2 Y 复经济学院

R Y Y R1 Y1 IS1 P LM1 Y1 AD1 P1 Increase government purchase at the equilibrium point (R1 , Y1 )G IS2 1. IS Curve shifts to IS2 . and under the same price level output increases to Y2 Y2 R2 Y2 2. 2. AD curve shifts to AD2 AD2 3. 6.1 AD Function：Fiscal policies and AD curves

6.1 AD Function: S-LM Curves and AD Curves in Short or Long Term ⊙|S-LM: Y=C(Y-7)+I(7)+ M/P=L(r) o Short term(Keynesian): given P= P1, solve r andy IS-LM for a given price level o Long term(Classical): given Y=YLR solve r and p LRAS and ad curves 友学经济学院

6.1 AD Function：IS-LM Curves and AD Curves in Short or Long Term  IS-LM：  Short term (Keynesian)： given P = P1,solve r and Y。 ❖ IS-LM for a given price level  Long term (Classical)： given Y = YLR solve r and P。 ❖ LRAS and AD curves / ( , ) ( ) ( ) M P L Y r Y C Y T I r G = = − + +

6.2 AS Function ⊙ Determinants of as s Human resources: including the quantity and quality of labor .o Nature resources: including land, mine forests, ocean and anything that could be used for production and services Capital stock: including factories equipments highway etc o Technology: the transformation from inputs to outputs 友学经济学院

6.2 AS Function  Determinants of AS ❖ Human resources：including the quantity and quality of labor ❖ Nature resources：including land, mine , forests, ocean and anything that could be used for production and services ❖ Capital stock：including factories 、 equipments、highway etc. ❖ Technology：the transformation from inputs to outputs

6.2 AS Function o Aggregate Supply: gross supply of productions and services in the whole society at a given price level, which depends on one country's productive factors and technology level O AS Function: the relationship between aggregate supply and price level, or the quantitative relationship between gross supply in the whole society and the price level 友学经济学院

6.2 AS Function  Aggregate Supply：gross supply of productions and services in the whole society at a given price level, which depends on one country’s productive factors and technology level.  AS Function：the relationship between aggregate supply and price level, or the quantitative relationship between gross supply in the whole society and the price level