Money and Banking Lecture 8 Aggregate Demand and Supply Analysis Ch. 22 - PowerPoint PPT Presentation

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Money and Banking Lecture 8 Aggregate Demand and Supply Analysis Ch. 22

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The relationship between the quantity. of aggregate output demanded and the ... Long-run aggregate supply curve ... Short-run aggregate supply curve. Wages and ... – PowerPoint PPT presentation

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Title: Money and Banking Lecture 8 Aggregate Demand and Supply Analysis Ch. 22


1
Money and BankingLecture 8Aggregate Demand and
Supply AnalysisCh. 22
  • Selcuk Caner
  • Bilkent University

2
Aggregate Demand
  • The relationship between the quantity of
    aggregate output demanded and the price level
    when all other variables are held constant
  • Based on the quantity theory of money
  • Determined solely by the quantity of money
  • Based on the components parts
  • Consumption, investment, government spending and
    net exports

3
Quantity Theory of Money Approach
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Behavior of Aggregate Demands Component Parts
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Factors that Shift Aggregate Demand
  • An increase in the money supply shifts AD to the
    right because it lowers interest rates and
    stimulates investment spending
  • An increase in spending from any of the
    components C, I, G, NX, will also shift AD to the
    right

7
Aggregate Supply
  • Long-run aggregate supply curve
  • Determined by amount of capital and labor and the
    available technology
  • Vertical at the natural rate of output generated
    by the natural rate of unemployment
  • Short-run aggregate supply curve
  • Wages and prices are sticky
  • Generates an upward sloping SRAS as firms attempt
    to take advantage of short-run profitability when
    price level rises

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