...Chapter 25: Aggregate Demand, Aggregate Supply and Modern Macroeconomics Questions for Thought and Review 1. The central difference between activist and laissez-faire economists is their differing views about whether the economy is self-regulating. Laissez-faire economists (Classicals) believe the pricing mechanism will bring the economy to an equilibrium (potential output and full employment) while activist economists (Keynesians) do not share that belief. 2. Classicals felt that if the wage was lowered, the Depression would end. They saw unions as preventing the fall in wages, and they saw the government lacking the political will to break up unions. 3. Five factors that shift the AD curve are: changes in foreign income, changes in expectations, changes in exchange rates, changes in the distribution of income, and changes in government aggregate demand policy. 4. Say there is a rise in the price level. That would make the holders of money poorer (the wealth effect). It would also reduce the real money supply, increasing the interest rate (the interest rate effect). Assuming fixed exchange rates, it would also make goods less internationally competitive (the international effect). All three account for the quantity of aggregate demand decreasing—decreasing spending as the price level rises. These initial increases are then multiplied by the multiplier effect as the initial spending reverberates through the economy. 5. Two factors that shift the SAS curve...
Words: 4178 - Pages: 17
...9/26/2012 Lecture 1 – Introduction to Macroeconomics • Key concepts of macroeconomics Key concepts of macroeconmics • Macroeconomics is the study of the behavior of the economy as a whole. • Aggregate demand and supply What is an economy? -> Google images search: Vietnam Economy • Economy: An economy consists of the economic systems of a country, which allocate the labor, capital, and land resources for manufacturing, production, trade, distribution, and consumption of goods and services. 1 9/26/2012 • Macroeconomics: examines overal level of national income, employment, and prices of an economy. 1. National output/income: total output of an economy is Gross Domestic Product (GDP) 2. Employment: Labor force includes all employed persons and those unemployed individuals who are seeking jobs. 3. Stable prices: consumer price index (CPI), inlfation rate Why national income? • The ultimate objective of economic activity is to provide the goods and services that the population desire. e.g. shelter, foods, education, recreation • • The most comprehenshive measure of the total output in an economy is the gross domestic product (GDP). GDP is the measure of the market value of all final goods and services produced in a country during a year. Gross domestic product growth rate 12 10 8 6 4 2 0 -2 • Why some countries are rich, while others are poor? • Size of GDP? GDP growth rate? • What factors...
Words: 887 - Pages: 4
...indicators of the macroeconomy. The main topics uncovered for this week include aggregate demand, aggregate supply, the Keynesian Model, and the Classical Model. You have an opportunity to explore these concepts in the Learning Team Weekly Reflection, the Fundamentals of Macroeconomics Paper, and the discussion topic. Aggregate Demand and Supply Models OBJECTIVE: Analyze the impact of various factors on aggregate demand and supply. Resource: Ch. 10 of Macroeconomics. Content • Ch. 10: “The Aggregate Demand/Aggregate Supply Model” o The Historical Development of Modern Macro o The AS/AD Model o The Aggregate Demand Curve o The Short-Run Aggregate Supply Curve o The Long-Run Aggregate Supply Curve o Equilibrium in the Aggregate Economy o Why Macro Policy Is More Complicate Than the AS/AD Model Makes It Look OBJECTIVE: Evaluate the effectiveness of changes in fiscal policies using Keynesian and Classical models Resource: Ch. 12 of Macroeconomics. Content • Ch. 12: “Thinking Like a Modern Macroeconomist” o Why It Is Important to Know about Modern Macro Theory o Engineering Models and Scientific Models o From the Keynesian Revolution to Modern Macro Models o A Beginner’s Guide to the DSGE Model o Policy Implications of the DSGE Model o How Relevant Are the Problems? o Modern Macroeconomic Policy and the Collapse of the Tacoma Narrows Bridge o The Complexity Approach...
Words: 267 - Pages: 2
...Name Institution Instructor Title Describe the terminology of macroeconomics including GDP, GNP, national income business cycles, monetary policy, fiscal policy, inflation and unemployment Macroeconomics is a broad sub-field of economics that establishes the behavior, outlook and structure, collective and established decision making system of an economy at large and usually involves national economies, regional and global economies with little or no involvement of the individual markets. Gross National Product is a determining tool in macroeconomics that measures a nation’s economy and status through international investments and residents working over-seas. GNP excludes any product values produced by foreign investors within the country. GNP is a great indicator in macroeconomics when assessing economic progress in comparison with Gross Domestic Income. (Clark & Montjoy, 2001) Macroeconomics uses GDP to determine the value of all market products and services produced within a given boundary usually a nation in a period of one year. At every stage of production, the value of all goods is added and the economic growth established based on the previously assessed standards. Macroeconomists explain that unemployment tends to reduce with a rising GDP rate since the output is increased and thus need for more skilled and unskilled labor force. Inflation gives an explanation on the rate at which product prices increase over time. Macroeconomists study this phenomenon...
Words: 1224 - Pages: 5
...of Macroeconomics by Smriti Chand Macro Economics The Nature and Scope of Macroeconomics! Introduction: The term ‘macro’ was first used in economics by Ragner Frisch in 1933. But as a methodological approach to economic problems, it originated with the Mercantilists in the 16th and 17th centuries. They were concerned with the economic system as a whole. In the 18th century, the Physiocrats adopted it in their Table Economies to show the ‘circulation of wealth’ (i.e., the net product) among the three classes represented by farmers, landowners and the sterile class. Malthus, Sismondi and Marx in the 19th century dealt with macroeconomic problems. Walras, Wicksell and Fisher were the modern contributors to the development of macroeconomic analysis before Keynes. Certain economists, like Cassel, Marshall, Pigou, Robertson, Hayek and Hawtrey, developed a theory of money and general prices in the decade following the First World War. But credit goes to Keynes who finally developed a general theory of income, output and employment in the wake of the Great Depression. Contents: Nature of Macroeconomics Difference between Microeconomics and Macroeconomics Dependence of Microeconomic Theory on Macroeconomics Dependence of Macroeconomics on Microeconomic Theory Macro Statics, Macro Dynamics and Comparative Statics Transition from Microeconomics to Macroeconomics Stock and Flow Concepts 1. Nature of Macroeconomics:________________________________________ Macroeconomics is the...
Words: 11722 - Pages: 47
...Mercer University Econ 151: Principles of Macroeconomics Homework 03_ Answers Name: Student ID: 1) As the real interest rate in the domestic loanable funds market increases, a. | the cost of purchasing goods and services during the current period will decrease. | b. | the net inflow of capital from abroad will increase. | c. | the inflationary premium will rise and the money rate of interest will decline. | d. | a trade surplus will occur. | ANS: B 2) Monetary policy can be most accurately described as a. | the use of government taxation and expenditures to achieve macroeconomic goals. | b. | the use of the government's regulatory powers to improve economic efficiency. | c. | the government provision of goods to improve economic efficiency. | d. | the deliberate control of the money supply to achieve macroeconomic goals. | ANS: D 3) The use of government taxation and expenditures to achieve macroeconomic goals is called a. | cyclical policy. | b. | monetary policy. | c. | fiscal policy. | d. | industrial policy. | ANS: C 4) As the U.S. price level rises relative to price levels in other countries, what would happen in the U.S.? a. | consumption and net exports would decline | b. | consumption and net exports would increase | c. | consumption would increase and net exports would decrease | d. | consumption would decrease and net exports would increase | e. | consumption and net exports would remain constant | ...
Words: 1654 - Pages: 7
...Define Macroeconomics? Difference between Microeconomics And Macroeconomics. Macroeconomics is the part of economics concerned with large scale of general economic factors, such as interest rate & national productivity. Simply, macroeconomics is the study of behavior of the economy as a whole. Broadly, macroeconomics is the field of economy that studies the behavior of the aggregate economy. Macroeconomics is the branch of economics that studies the entire economy. O. M. Amos Macroeconomics, which is the study of broad aggregates such as total employment & national income. Henderson & Quanat Macroeconomics deals with large scal economic activities of environment. G. Akle Macroeconomics examines economy in wide phenomena such as changes in unemployment, national income, rate of growth, gross domestic product, inflation & price level. Finally, macroeconomics is the study of broad economic activities & trends, is possibly the largest subfield in economy which consider the performance of the economy as a whole. Microeconomics | Macroeconomics | Microeconomics is the study of the individuals economy of a person, a company or a country. | Macroeconomics is the study of the economy as a whole. | Microeconomics is also known as price theory. | Macroeconomics is also known as income theory. | All kinds of requirements of an individual or a company can be identified. | All...
Words: 447 - Pages: 2
...Aggregate Demand and Supply Evaluate the extent to which an increase in aggregate demand may affect real output, inflation and unemployment. [25] Real output is an abbreviation for Real Gross Domestic Product or (Real GDP) is a macroeconomics measure of the value of economic output adjusted for price changes, this adjustment transforms the money-value measure, nominal GDP, into an index for quantity of total output. Inflation is the increase in general price level over a sustained period of time. Then unemployment is the number if people out of work, which is measure at a point in time, these people out of work are willing and able to hold a job but are unable to find one. Aggregate demand is the total of all demands or expenditures in the economy at any given price. It is created with four factors; Consumption [C], Investment [I], Government Spending [G] and Exports minus imports [X-M]. Creating the formula of: AD = C + I + G + (X-M). Consumption is the total spending by households on goods and services, Investment is the spending by firms on investment goods, Government Spending includes the current spending, for instance on wages and salaries and also includes spending by government, Imports are goods and services which are coming from a foreign, and Exports are good and services going out of a country. Aggregate supply is the total supply of goods and services that firms in a national economy plan on selling during a specific time period. It is split into Long...
Words: 537 - Pages: 3
...words, we take up the individual decision – making units of an economy in microeconomics e.g., we analyze the demand of a product or often individual and the equilibrium price of a product rather than discussing the aggregate demand of the economy and the general price level in a country. Similarly in microeconomics, we study the determination of price/reward of a factor of production, analysis of an individual firm or industry, the consumption pattern of a person, choice of technique and different market situations etc. Microeconomics is generally called the “Price Theory”. • Production. In this part of microeconomics we study the meaning of the production of wealth, the cost of production and how it is minimized factor of production and their relative importance in the production process, the production function, the analysis of supply etc. • Exchange. This part covers the market mechanism or the exchange of wealth through the forces of demand and supply, perfect and imperfect market at the behavior of the competitors etc. • Distribution. This part starts with the theory of distribution of rewards to the four factors of production. It explicit by bringing into account the theories of wage, rent, interest and profit. • Consumption. This part brings into focus the behavior of a consumer, maximization of total utility by minimum expenditure, the analysis of demand of the consumer etc. The analysis of microeconomics is based on the assumptions of full...
Words: 1180 - Pages: 5
...Unit 1 - Individual Project - Introduction to Macroeconomic Theory Click Link Below To Buy: http://hwcampus.com/shop/unit-1-individual-project-introduction-macroeconomic-theory/ Assignment Details Assignment Description Weekly tasks or assignments (Individual or Group Projects) will be due by Monday and late submissions will be assigned a late penalty in accordance with the late penalty policy found in the syllabus. NOTE: All submission posting times are based on midnight Central Time. In economics, they say a picture is worth a thousand words. Below, you will find two scenarios. Your assignment is to discuss the situation by writing the solutions, and then show the solutions and how you got here in one or more graphs or flowcharts. Scenario One Supply and demand are foundational concepts in understanding economic theory. Whether you are a coffee drinker or not, you have been tasked to examine the impact of supply and demand when dealing with the coffee retail industry. A few companies probably come to mind. Pick a major coffee retailer, and then contemplate what has been happening to both the supply and demand for this product. Next, analyze the following scenario that deals with what happened in the coffee industry at the beginning of the last decade: In the early part of the last decade, there was an overproduction of coffee. The price dropped so low that producers' costs were higher than the market price. The reason this happened was that market prices...
Words: 4383 - Pages: 18
...Unit 1 - Individual Project - Introduction to Macroeconomic Theory Click Link Below To Buy: http://hwcampus.com/shop/unit-1-individual-project-introduction-macroeconomic-theory/ Assignment Details Assignment Description Weekly tasks or assignments (Individual or Group Projects) will be due by Monday and late submissions will be assigned a late penalty in accordance with the late penalty policy found in the syllabus. NOTE: All submission posting times are based on midnight Central Time. In economics, they say a picture is worth a thousand words. Below, you will find two scenarios. Your assignment is to discuss the situation by writing the solutions, and then show the solutions and how you got here in one or more graphs or flowcharts. Scenario One Supply and demand are foundational concepts in understanding economic theory. Whether you are a coffee drinker or not, you have been tasked to examine the impact of supply and demand when dealing with the coffee retail industry. A few companies probably come to mind. Pick a major coffee retailer, and then contemplate what has been happening to both the supply and demand for this product. Next, analyze the following scenario that deals with what happened in the coffee industry at the beginning of the last decade: In the early part of the last decade, there was an overproduction of coffee. The price dropped so low that producers' costs were higher than the market price. The reason this happened was that market prices...
Words: 4383 - Pages: 18
...Jahangirnagar University Institute of Business Administration Essay On The Standard Supply & Demand Model and The Aggregate Supply & Demand Model Course: BUS 209-Macroeconomics Submitted to: Dr. Shuddhasattwa Rafiq Director and Associate Professor Institute of Business Administration Jahangirnagar University Submitted by: Md. Nahid Alam Class ID: 2368 (21st batch) Institute of Business Administration Jahangirnagar University Date of Submission: 11-06-2013 Essay On The Standard Supply & Demand Model and The Aggregate Supply & Demand Model June 11, 2013 Dr. Shuddhasattwa Rafiq Director and Associate Professor Institute of Business Administration Jahangirnagar University Savar, Dhaka-1342. Subject: Essay Submission. Sir It’s my immense pleasure to submit the essay on “The Standard Supply & Demand Model and The Aggregate Supply & Demand Model” that you have assigned me at the beginning of this semester. Submitting this essay is the partial fulfillment of this particular course. I believe that this essay will help to understand supply and demand, how supply and demand curves derive in microeconomics & macroeconomics and what determines the slopes of supply and demand curves. Thank you for giving the opportunity to prepare this report. It was really a wonderful experience. I hope you find this essay satisfactory. Sincerely, ------------------------- TABLE OF CONTENTS Context Name | Page...
Words: 4888 - Pages: 20
...SIX DEBATES over MACROECONOMIC POLICY SIX DEBATES over MACROECONOMIC POLICY ISSUES | YES | NO | 1. Whether or not monetary and fiscal policymakers should try to stabilize the economy | Advocates of active monetary and fiscal policy view the economy as inherently unstable and believe that policy can manage aggregate demand, and thereby, production and employment, to offset the inherent instability. When aggregate demand is inadequate to ensure full employment, policymakers should boost government spending, cut taxes, and expand money supply. However, when aggregate demand is excessive, risking higher inflation, policymakers should cut government spending, raise taxes, and reduce the money supply. Such policy actions put macroeconomic theory to its best use by leading to a more stable economy, which benefits everyone. | Critics of active monetary and fiscal policy emphasize that policy affects the economy with a lag and that our ability to forecast future economic conditions is poor. As a result, attempts to stabilize the economy can end up destabilizing. It might be desirable if policymakers could eliminate all economic fluctuations, but that is not a realistic goal given the limits of macroeconomic knowledge and the inherent unpredictability of world events. Economic policymakers should refrain from intervening often with monetary and fiscal policy and be content if they do no harm. | 2. Whether or not the government should fight recessions with spending...
Words: 1364 - Pages: 6
...AGGREGATE DEMAND AND SUPPLY The Need for Aggregate Model/Statistics: The aggregate demand model is needed in every economy to assist in macro economic analysis. Such national statistics would be ideal for: 1) Making International Comparisons: In doing this it is necessary to convert the figures to same currency using a rate of exchange. 2) Government Planning: A rising real national income with a fairly constant capital stock will generally be associated with a fall in unemployment. Similarly, there is likely to be direct relationship between the level of real national income and the rate of inflation. As the equilibrium level of national income reaches the full employment level of national income, so inflationary pressure is likely to build up in the economy. To devise appropriate government policies, to combat unemployment and inflation and to estimate the effects of such policies, accurate national income statistics are essential. 3) Formulating macroeconomic policy. 4) The aggregate model is needed to explain why prices in general rise or fall. 5) Explaining what determines changes in the level of aggregate output Aggregate Demand * This is the total quantity of output demanded at alternative price levels in a given time period, “ceteris paribus”. * Our view here encompasses the collective demand for all goods and services rather than the demand for any single good. * It therefore consists of demand of local consumers, firms, the...
Words: 1221 - Pages: 5
...Question : | Use the figure below to answer the following question: Refer to the above diagram, which shows demand and supply conditions in the competitive market for product X. If the initial demand and supply curves are D0 and S0, equilibrium price and quantity will be: | | | Student Answer: | | 0F and 0C respectively. | | | | 0G and 0B respectively. | | | | 0F and 0A respectively. | | | | 0E and 0B respectively. | | | | Points Received: | 5 of 5 | | Comments: | | | | Question 2. | Question : | Which is included in the expenditures approach to GDP? | | | Student Answer: | | Spending on meals by consumers at restaurants | | | | Spending on used clothing by consumers at garage sales | | | | The monetary value of stocks and bonds owned by investors | | | | The monetary value of used trucks purchased by construction companies | | | | Points Received: | 5 of 5 | | Comments: | | | | Question 3. | Question : | A worker who loses a job at a call center because business firms switch the call center to another country is an example of: | | | Student Answer: | | Frictional unemployment | | | | Structural unemployment | | | | Cyclical unemployment | | | | Disguised unemployment | | | | Points Received: | 5 of 5 | | Comments: | | | | Question 4. | Question : | In calculating the unemployment rate, "discouraged"...
Words: 4764 - Pages: 20
