1. Equilibrium levels of real national output (aggregate demand and supply) “If you’re not confused, you’re not paying attention” Anon https://www.youtube.com/watch?v=VVp8UGjECt4&index=1&list=PLFEF36C1CCC20FF05 https://www.youtube.com/watch?v=VVp8UGjECt4&index=1&list=PLFEF36C1CCC20FF05

2. Unit content Students should be able to: Explain the concept of equilibrium real national output Use AD/AS diagrams to show how shifts in AD or AS cause changes in the equilibrium price level and real national output Define the multiplier ratio and the multiplier process Apply the marginal propensities and their effects on the multiplier (MPC, MPS, MPT and MPM) Use the formula 1/(1 – MPC) and 1/MPW where MPW = MPS + MPT + MPM Apply the multiplier to shifts in AD Assess the effects of the economy on the multiplier

3. Macroeconomic equilibrium: sketch a diagram showing the interaction of SRAS and AD The graph shows the macroeconomic equilibrium where AD = AS at price level ___ and real output ___

4. When does equilibrium occur?

5. Macroeconomic equilibrium at full employment Sketch the Keynesian LRAS Mark on AD at full employment when all factors of production are fully employed. What would happen if firms tried to increase output? Mark on AD below full employment level, what does this mean for the economy?

6. What does this diagram show?

7. The multiplier example If the government increased spending by £1 billion on the NHS (e.g. building more A&E centres) this would lead to more income for households: why? What would these workers do with this extra money What would that lead to? So, the original government expenditure sparked off further spending causing a multiplier effect. If an increase in investment leads to a bigger increase in national income this is called the multiplier.

8. The multiplier definition

9. What does the size of the multiplier depend on? the size of leakages (withdrawals) e.g. how much is ______ by households, how much is spent on ________, how much is lost in ______ to the government. the size of withdrawals also depends on domestic elasticity of supply – if domestic supply is inelastic then it will not be able to meet an increase in demand and so more imports will be bought hence diluting the multiplier effect. Injections have a multiplier effect and they can be from the g___________, from investment (f_____) and/or from e_________

10. Examples of multipliers – what will happen if: What is the AD formula? For the following questions decide if the multiplier will increase or decrease then state which part of the AD formula is changing Savings increase? Multiplier will __________ since ___ decreases More imports are purchased? Multiplier will __________ since ___ increases Income tax increases? Multiplier will __________ since ___ decreases

11. The multiplier and shifts in AD An injection will have a multiplier effect and so the initial shift to the right of the AD curve will then lead to further shifts. Similarly a withdrawal will have a multiplier effect in the opposite direction and cause multiple leftward shifts of the AD curve. Sketch this:

12. Evaluating the multiplier This will depend on the case study but you could include: Difficulty in measuring it Time it takes to come into full effect Size of leakages Elasticity of supply

13. Tricky question: is an increase in exports good for an economy? HINT: sketch the Keynesian LRAS with shifting AD curves

14. Video on multiplier and fiscal policy 1.What is fiscal policy? 2.What are the components of aggregate demand? 3.Draw the diagram from the video 4.What is the Phillips curve? 5.What is the multiplier effect? 6.Explain his example about £10billion.

15. Summary poster 1. Marginal propensities and their effects on the multiplier: the marginal propensity to consume (MPC) the marginal propensity to save (MPS) the marginal propensity to tax (MPT) the marginal propensity to import (MPM) 2. Formulae 1/(1-MPC) and 1/MPW, where MPW=MPS+MPT+MPM