Chapter 11- Aggregate Demand/Aggregate Supply 4/22/2019 Chapter 11- Aggregate Demand/Aggregate Supply Objective – Students will be able to answer questions regarding the AD/AS model. SECTION 1 © 2001 by Prentice Hall, Inc.

Full Employment Full Employment equilibrium exists where AD intersects SRAS & LRAS at the same point. LRAS SRAS PL P AD YF GDPR

Changes (Δ) in SRAS Δ Input Prices Input Prices↓ .: SRAS  .: GDPR↑ & PL↓ .: u%↓ & π%↓ Input Prices↑ .: SRAS  .: GDPR↓ & PL ↑ .: u%↑ & π%↑ Δ Productivity Productivity↑ .: SRAS  .: GDPR↑ & PL↓ .: u%↓ & π%↓ Productivity↓ .: SRAS  .: GDPR↓ & PL ↑ .: u%↑ & π%↑ Δ Legal-Institutional Environment Deregulation .: SRAS  .: GDPR↑ & PL↓ .: u%↓ & π%↓ Regulation .: SRAS  .: GDPR↓ & PL ↑ .: u%↑ & π%↑

Practice Problem Graph and explain what would happen to the equilibrium PL, GDPr, u%, and π% in the short run if the economy is in full employment equilibrium and there is a decrease in input costs.

Increase in SRAS SRAS LRAS PL SRAS1  P  P1 AD  Y YF GDPR Input Prices↓, Productivity↑, and/or Deregulation .: SRAS  .: GDPR↑ & PL↓ .: u%↓ & π%↓

Decrease in SRAS SRAS1 LRAS PL SRAS  P1  P AD  Y1 YF GDPR Input Prices↑, Productivity↓, and/or Regulation .: SRAS  .: GDPR↓ & PL↑ .: u%↑ & π%↑

AS / AD Summary ΔC, ΔIG, ΔG, and/or ΔXN = Δ AD AD  .: GDPR↑ & PL↑ .: u%↓ & π%↑ AD  .: GDPR↓ & PL↓ .: u%↑ & π%↓ Δ Input Prices, Δ Productivity, and/or Δ Regulation = Δ SRAS SRAS  .: GDPR↑ & PL↓ .: u%↓ & π%↓ SRAS  .: GDPR↓ & PL ↑ .: u%↑ & π%↑ The AS/AD Model is the most important graph in AP Macroeconomics. KNOW IT!!!

PL Yf As Classical Range Intermediate Range Keynesian Range Ad Q =Real GDP=Y

Shifts in LRAS: LRAS LRAS1 PL Productivity SRAS Q & Q of natural resources Capital Stock Health & Edu. 5. Technology AD RGDP = Y Yf

Section 1 Assessment Graph and explain what would happen to the equilibrium PL, GDPr, u%, and π% in the short run if the economy is in full employment equilibrium and there was a decrease in government regulation. 2. Graph and explain what would happen to the equilibrium PL, GDPr, u%, and π% in the short run if the economy is in full employment equilibrium and there is an increase in input prices.

Summary: In a paragraph, describe what you have learned today.