Macro 12

2. Lecture 11
Macroeconomics

3. Opening
Prayer

4. Quiz Master

5. Quiz
1.What is AS a function of?
2. Name 3 things that can shift AS to the left
3. Name 3 things that can shift AD to the right

6. In
fl
ation
Rate
P
π
AD
Real GDP Growth Rate Y
Shift Left - Decreasing Demand
Slower Money Supply Growth
(higher interest rates)
Fear
Reduced Wealth
Higher Personal Taxes
Lower Government Spending
Decreased Export Growth
Increased Import Growth
Shift Right - Increasing Demand
Faster Money Supply Growth (lower interest rates)
Con
fi
dence
Increased Wealth
Lower Personal Taxes
Higher Government Spending
Increased Export Growth
Decreased Import Growth

7. Real GDP Growth Rate
In
fl
ation
Rate
π
LRAS
Shift Left - Losing Capitals
Bad weather
Higher oil price
Tech slump
Higher business taxes or regulations
War, Earthquake, Pandemic
Shift Right - Gaining Capitals
Good weather
Lower Oil Price
Tech boom
Lower business taxes or regulation
Smooth production

8. Real GDP Growth Rate
In
fl
ation
Rate
π
LRAS
AD

9. A
D
Real GDP Growth Rate
Price
Level
AS
Adam Smith
Classical Model

10. A
D
100
Price
Level
AS
Adam Smith
Classical Model
Recession
Unemployment
Real GDP
$6.50
$4.00
50

11. What if people don't want to
change prices?
Recession - Unemployment

12. Real GDP Growth Rate
In
fl
ation
Rate
π
AD
LRAS
SRAS

13. Father of Macroeconomics
John Maynard Keynes
(1883 - 1946)
The GeneralTheory of
Employment,
Interest and Money
The ideas of economists and political
philosophers are more powerful than
commonly understood; indeed the
world is ruled by little else.

14. AD
Price
Level
LRAS
Adam Smith
Neo-Classical Model
Real GDP
SRAS
John Keynes

15. Short-Run Supply
Curve
Adrenaline
Give 110%
Push to exceed normal
capacity

16. Long Run
Run out of
Adrenaline
Fall back to normal
Cannot do 110%
forever

17. Real GDP Growth Rate
In
fl
ation
Rate
π
AD
LRAS
SRAS

18. Price
Level
Quantity of Output
Two Supply Curves
Short-Run
Aggregate
Supply
Long-Run
Aggregate
Supply
Price
change
does not
affect the
quantity of
goods and
services
P

19. New
Capital
Human
Physical
Intellectual
Price
Level
Quantity of Output
Two Supply Curves
LRAS
1
Y1
LRAS
2
Y3
LRAS
3
Y3

20. Great Depression
1929-1940
MV = PY
M = Reduced
V = Reduced
P = Stuck
Y = Reduced

22. Aggregate Supply Curve

23. Aggregate Demand Curve

24. Aggregate
Supply
Shift Left - Decreasing Demand
Slower Money Supply Growth
Fear
Reduced Wealth
Higher Personal Taxes
Lower Government Spending
Decreased Export Growth
Increased Import Growth
Shift Right - Increasing Demand
Faster Money Supply Growth
Con
fi
dence
Increased Wealth
Lower Personal Taxes
Higher Government Spending
Increased Export Growth
Decreased Import Growth
Left
Shift Left - Losing Capitals
Bad weather
Higher oil price
Tech slump
Higher business taxes or regulations
War, Earthquake, Pandemic
Shift Right - Gaining Capitals
Good weather
Lower Oil Price
Tech boom
Lower business taxes or regulation
Smooth production
Aggregate
Demand
Right

25. π Y
Quiz ADAS Modeling In
fl
ation Output
Curve Direction Level Level
1. Good Weather
2. Slower Money Growth Rate
3. Lower Business Taxes
4. Decrease in Exports
5. New innovation
6. Lower electricity prices
7. Higher Personal Taxes
8. Earthquake
AD
Real GDP Growth Rate
In
fl
ation
Rate
π
LRAS
SRAS

26. π Y
Quiz ADAS Modeling In
fl
ation Output
Curve Direction Level Level
1. Good Weather
2. Slower Money Growth Rate
3. Lower Business Taxes
4. Decrease in Exports
5. New innovation
6. Lower electricity prices
7. Higher Personal Taxes
8. Earthquake

27. AD
Real GDP Growth Rate
In
fl
ation
Rate
π
LRAS
SRAS

28. Mv =
M + v = P

29. M V MV %∆M +
%∆V
2012 100 3 300
2013 120 4 480
Chang
e
20 1 180
Rate
of
20% 33% 60% 53%

30. M + v = P
M + v = In
fl
ation + Real
5% + 0% = In
fl
ation + 0%

31. 0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
-2% 0% 2% 4% 6%
Aggregate Demand
AD = M +V =
P
In
fl
ation
Rate
Y - Real GDP Growth Rate
5% = P +Y
AD = 7%

32. 0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
-2% 0% 2% 4% 6%
Aggregate Demand
P
In
fl
atio
n
Y - Real GDP Growth

33. %∆M + %∆V = 6% = %∆P + %∆Y
6%
6%
0%
0%
%∆P In ation π
%∆Y GDP
Aggregate Demand

34. Two Supply
Curves
Long-Run

35. LRAS
AD (M + v = 10%)
P
In
fl
ation
Rate
π
Y
Real GDP
growth rate
M + v = P + Y
M + v = 10% = 7% + 3%
If Real growth is 3%,
and M is 10%, what is
in
fl
ation?
3%
7%
11%
3%
7%
-1%

36. LRAS1
AD (M + v = 10%)
P
In
fl
ation
Rate
π
Y
Real GDP
growth rate
M + v = P + Y
3%
7%
11%
3%
7%
-1%
LRAS2
LRAS3
New Capital
Human Beings
Ideas
Human
Physical
Intellectual
Financial
Cultural
Markets
Entrepreneurs
Innovations

37. LRAS1
AD (M + v = 10%)
P
In
fl
ation
Rate
π
Y
Real GDP
growth rate
M + v = P + Y
3%
7%
11%
3%
7%
-1%
New Capital
Human Beings
Ideas
Human
Physical
Intellectual
Financial
Cultural
Markets
Entrepreneurs
Innovations

38. Two Supply Curves
Long-Run
Short-Run

39. A
D
Real GDP Growth Rate
Price
Level
AS
Adam Smith
Classical Model

40. A
D
100
Price
Level
AS
Adam Smith
Classical Model
Recession
Unemployment
Real GDP
$6.50
$4.00
50