http://apeconomics.ncee.net unit 3 : macroeconomics national council on economic education simple...
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http://apeconomics.ncee.netUnit 3 : MacroeconomicsNational Council on Economic Education
Simple Keynesian Model
Planned aggregate expenditure = C + I + G + NX
45 degree line: all points where production (real GDP) = aggregate expenditure
Equilibrium occurs where planned aggregate expenditure equals production
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http://apeconomics.ncee.netUnit 3 : MacroeconomicsNational Council on Economic Education
Equilibrium and Disequilibrium in theKeynesian Model
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http://apeconomics.ncee.netUnit 3 : MacroeconomicsNational Council on Economic Education
Saving and Dissaving
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http://apeconomics.ncee.netUnit 3 : MacroeconomicsNational Council on Economic Education
Increase in Investment
Investment increases from I to I1.Output increases from Y to Y1.
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http://apeconomics.ncee.netUnit 3 : MacroeconomicsNational Council on Economic Education
Investment Demand
Interest rate decreases from r to r1.
Investment increases from I to I1.
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http://apeconomics.ncee.netUnit 3 : MacroeconomicsNational Council on Economic Education
Different Elasticities of Investment Demand
Decrease of interest rates from r to r1.
With IA, investment increases from I to I2.
With IB, investment increases from I to I1.
IA is more elastic than IB.
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http://apeconomics.ncee.netUnit 3 : MacroeconomicsNational Council on Economic Education
Aggregate Demand
An increase in price from P to P1 results in
a decrease in real GDP from Y to Y1
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http://apeconomics.ncee.netUnit 3 : MacroeconomicsNational Council on Economic Education
Shifts in Aggregate Demand
A decrease in expected future income, in government expenditures, in the money supply or an increase in taxes will cause the AD to shift from AD to AD1.
An increase in expected future income, in government expenditures or in the money supply, or a decrease in taxes will cause the AD to shift from AD to AD2.
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http://apeconomics.ncee.netUnit 3 : MacroeconomicsNational Council on Economic Education
Aggregate Supply
Y* represents potential real GDP. It is full-employment output.
SRAS is the short-run aggregate supply curve.
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http://apeconomics.ncee.netUnit 3 : MacroeconomicsNational Council on Economic Education
Aggregate Supply
1. Potential GDP increases from Y* to Y*1. The LRAS shifts to LRAS1 and the short-run aggregate supply curve shifts to SRAS1.
2. Decrease in resource prices will shift the SRAS to SRAS1. A decrease in the money wage rate does not change the LRAS.
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http://apeconomics.ncee.netUnit 3 : MacroeconomicsNational Council on Economic Education
Aggregate Supply and Aggregate Demand
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http://apeconomics.ncee.netUnit 3 : MacroeconomicsNational Council on Economic Education
Change in Aggregate Demand
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http://apeconomics.ncee.netUnit 3 : MacroeconomicsNational Council on Economic Education
From the Short Run to the Long Run
Initially the economy is at Y*, potential GDP and P.
Aggregate demand increases from AD to AD1 and the economy moves to Y1 and P1.
The final equilibrium is Y* and P2.
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http://apeconomics.ncee.netUnit 3 : MacroeconomicsNational Council on Economic Education
Long-Run Aggregate Supply and Production Possibilities Curves