1. AP Week 9 Test over Unit 2 and begin Unit 3
No class on Wednesday due to field trip and testing

2. This week: We will cover modules 17-19
You will need to read each module the night before
Take notes over your reading
The PP are on my website for the week- you may use them to help guide your reading. Remember that not every detail in the book is on a slide- you need to read also
Create vocabulary cards for the terms in each module. Vocabulary quiz next week.
Be prepared to answer questions and to create graphs from different problems, on worksheets, on whiteboards with a partner and alone and share with the class.

3. Vocabulary
Each of the bold terms in each unit

4. Monday
HOMEWORK IS ON NEXT SLIDE
Objective: You will test yourself over the concepts learned in measuring the economy and recall prior knowledge from basic economic concepts.
You will read the test questions and analyze the data given in written and graphical medium to answer the questions. You will write your calculations on the test itself and put your answer on the scan tran.
Do Now: Turn in the rest of the packet, get your formula card out and name on scan tran. Put all backpacks, and phones up- at front of the room and counter.
EQ: Did you study?

5. For Tuesday:
Read in the PDF book pages Module 17 ( ) Be prepared to answer questions when you come into class.
As you read, take notes: Define AD, what does it show the relationship between,
List and explain the reasons it is downward sloping, what are the components that the curve represent?
What causes the AD to shift? Left is? Rt is?
Create vocabulary cards for the terms in the module.

6. TUESDAY- GET TEST RESULTS
Objective: Be able to define AD, be able to create and label a graph for AD and explain why it is downward sloping. Know what the curve represents and what shift the curve.
You will share with your shoulder partner the definitions that you wrote, you will work on practice graphs given different scenarios to show what happens to the demand curve. You will use the whiteboards and work with your partner.
Do Now: Get out your notes from reading and go over them. Write in planner homework, Read and take notes on Module 18 for Thursday.
EQ: Can you explain the AD curve and compare it to a demand curve?

7. Demand

8. Aggregate Demand

9. quiz Draw and label an Aggregate Demand curve.
What will happen to the AD if
Consumers and firms are more optimistic?
When the real value of households assets rise?
When the existing stock of physical capital is relatively small?

10. What is Aggregate Demand?
Aggregate means “added all together.”
When we use aggregates
we combine all prices and all quantities.
Aggregate Demand is all the goods and services (real GDP) that buyers are willing and able to purchase at different price levels.
The Demand for everything by everyone in the US.
There is an inverse relationship between
price level and Real GDP.
If the price level:
Increases (Inflation), then real GDP demanded falls.
Decreases (deflation), the real GDP demanded increases.

11. Why does the AD curve slope downward
It is not due to the Law of Demand because:
This is the increase of price level, not the increase of price for one good.
We are looking at the demand for all goods- people might change what they demand but they still buy.
The curve is the C+I+G+XN, it is the demand for all the goods and services produced

12. Aggregate Demand Curve
AD is the demand by consumers, businesses, government, and foreign countries
Price
Level
What definitely doesn’t shift the curve?
Changes in price level cause a move along the curve
Note the different labels AD
= C + I + G + Xn
Real domestic output (GDPR)

13. Why is AD downward sloping?
WEALTH EFFECT
Higher price levels reduce the purchasing power of money
This decreases the quantity of expenditures
Lower price levels increase purchasing power and increase expenditures
Example:
If the balance in your bank was $50,000, but inflation erodes your purchasing power, you will likely reduce your spending.
So…Price Level goes up, GDP demanded goes down.

14. Why is AD downward sloping?
2. Interest-Rate Effect
When the price level increases, lenders need to charge higher interest rates to get a REAL return on their loans.
Higher interest rates discourage consumer spending and business investment. WHY?
Example: An increase in prices leads to an increase in the interest rate from 5% to 25%. You are less likely to take out loans to improve your business.
Result…Price Level goes up, GDP demanded goes down (and Vice Versa).

15. Why is AD downward sloping?

16. Why is AD downward sloping?
3. Foreign Trade Effect
When U.S. price level rises, foreign buyers purchase fewer U.S. goods and Americans buy more foreign goods
Exports fall and imports rise causing real GDP demanded to fall. (XN Decreases)
Example: If prices triple in the US, Canada will no longer buy US goods causing quantity demanded of US products to fall.
Again, Price Level goes up, GDP demanded goes down (and Vice Versa).

17. Shifters of Aggregate Demand
GDP = C + I + G + Xn

18. Shifts in Aggregate Demand
An increase in spending shift AD right, and decrease in spending shifts it left
Price
Level
AD1 AD
= C + I + G + Xn
AD2
Real domestic output (GDPR) 18

19. Shifters of Aggregate Demand
Change in Consumer Spending
Consumer Wealth (Boom in the stock market…)
Consumer Expectations (People fear a recession…)
Household Indebtedness (More consumer debt…)
Taxes (Decrease in income taxes…)
2. Change in Investment Spending
Real Interest Rates (Price of borrowing $)
(If interest rates increase…)
(If interest rates decrease…)
Future Business Expectations (High expectations…)
Productivity and Technology (New robots…)
Business Taxes (Higher corporate taxes means…)

20. Shifters of Aggregate Demand
Change in Government Spending
(War…)
(Nationalized Heath Care…)
(Decrease in defense spending…)
Change in Net Exports (X-M)
Exchange Rates
(If the us dollar depreciates relative to the euro…)
National Income Compared to Abroad
(If a major importer has a recession…)
(If the US has a recession…)
If dollar depreciates, more Europeans will buy US products causing Net Exports to increase
“If the US get a cold, Canada gets Pneumonia”
AD = GDP = C + I + G + Xn 20

21. How does this cartoon relate to Aggregate Demand?

22. How does this cartoon relate to Aggregate Demand?

23. TUESDAY-Closing
Objective: Be able to define AD, be able to create and label a graph for AD and explain why it is downward sloping. Know what the curve represents and what shift the curve.
You will share with your shoulder partner the definitions that you wrote, you will work on practice graphs given different scenarios to show what happens to the demand curve. You will use the whiteboards and work with your partner.
Homework: Read module 18 pages take notes
EQ: Can you explain the AD curve and compare it to a demand curve? What are the reason’s the AD slopes downward? Write them on sticky note with name and turn in – do this on your own.

24. Wednesday I will not see the students today- field trip and PSAT test
9th period will practice graphing and be able to work on vocabulary

25. Thursday- practice problems working with partners- turn in set
Objective: Be able to draw and explain the SRAS. Be able to explain the terms sticky wages, explain why there is a SRAS Be able to explain the difference of LRAS and the impact of wages and input cost in the long run. Be able to explain what shifts the AS with the acronym PEAR.
Language: be able to read your notes, fill in as needed, be able to listen to explanations and create AS with shifts from the examples
DO Now: Get your reading notes out, highlight new terms – hmwk: Read Module 19( ) take notes use PP as guide.
EQ: What is SRAS? LRAS?, What shifts?

26. Quick review over demand- randomly call on students from Mini-me’s
Hand out the papers for practice on ADAS
Students will collaborate and talk through the problems after I model one.
They will turn in the papers at end of class as exit ticket

27. Review- mini-me draws Define Aggregate. Define Aggregate Demand.
Explain and give an example of the Wealth Effect.
Explain and give an example of the Foreign Trade Effect.
Explain and give an example of the Interest-Rate effect.
Identify the Shifters of AD.
Give examples for each shifter.

28. Supply

29. Aggregate Supply

30. What is Aggregate Supply? The supply for everything by all firms.
Aggregate Supply is the amount of goods and services (real GDP) that firms will produce in an economy at different price levels.
The supply for everything by all firms.
Aggregate Supply differentiates between short run and long-run and has two different curves.
Short-run Aggregate Supply
Wages and Resource Prices will not increase as price levels increase. These are referred to as sticky wages
Long-run Aggregate Supply
Wages and Resource Prices will increase as price levels increase.

31. Short-Run Aggregate Supply
In the Short Run, wages and resource prices will NOT increase as price levels increase. (sticky wages)
Example:
If a firm currently makes 100 units that are sold for $1 each. The only cost is $80 of labor.
How much is profit?
Profit = $100 - $80 = $20
What happens in the SHORT-RUN if price level doubles?
Now 100 units sell for $2, TR=$200.
Profit = $120
With higher profits, the firm has the incentive to increase production.

32. Since supply cost are generally input cost of materials and wages we note that in the short run these costs do not increase overnight.
We refer to the wages as sticky wages, nominal wages that are slow to fall even in the face of high unemployment and slow to rise even in the face of labor
Also note that nominal wages are the wages you actually are paid- you make $10.00 an hour.
Your wages are often part of contracts and do not increase as rapidly as prices might change.

33. Aggregate Supply Curve
Price
Level AS
AS is the production of all the firms in the economy
Again note the proper labels
Real domestic output (GDPR) 33

34. Long-Run Aggregate Supply
In the Long Run, wages and resource prices WILL increase as price levels increase.
Same Example:
The firm has Total Revenue(TR) of $100 an uses $80 of labor.
Profit = $20.
What happens in the LONG-RUN if price level doubles?
Now TR=$200
In the LONG RUN workers demand higher wages to match prices. So labor costs double to $160
Profit = $40, but REAL profit is unchanged.
If REAL profit doesn’t change
the firm has no incentive to increase output.

35. Long run Aggregate Supply
In Long Run, price level increases but GDP doesn’t
LRAS
Price level
Long-run
Aggregate
Supply
Full-Employment
(Trend Line) QY
GDPR
We also assume that in the long run the economy will be producing at full employment.

36. Shifts in Aggregate Supply
An increase or decrease in national production can shift the curve right or left
AS2
Price
Level AS
AS1
Real domestic output (GDPR) 36

37. SHIFTERS OF AGGREGATE SUPPLY
P changes in Productivity, this could happen due to new technology or skills, education, etc.
E changes is Expectation: if they expect prices will rise or fall people will expect higher wages over time,
A Actions by government: Taxes on Producers (Lower corporate taxes…) Subsidies for Domestic Producers, (Lower subsidies for domestic farmers…), Government Regulations, (EPA inspections required to operate a farm…)
R change in Resource (input) costs like wages and materials (commodity prices)

38. Thursday- closing
Objective: Be able to draw and explain the SRAS. Be able to explain the terms sticky wages, explain why there is a SRAS Be able to explain the difference of LRAS and the impact of wages and input cost in the long run. Be able to explain what shifts the AS with the acronym PEAR.
Language: be able to read your notes, fill in as needed, be able to listen to explanations and create AS with shifts from the examples
Homework: Read module 19 pages Create vocabulary cards for new terms and take notes.
EQ: What is SRAS? LRAS?, What shifts?

39. Exit Ticket
On white board draw a ADAS, correctly labeled. Show it to another group for confirmation and then to me.
Write out PEAR and state what each letters represent. Turn in.
Don’t forget homework: read module , notes for this are on my website to guide your reading, be sure to take notes or copy PP

40. Friday-
Objective: Today you will practice drawing and answering ADAS at equilibrium questions so that you can identify what curve shifts and what directions it will shift. L. Objective: be able to read sample questions and practice working with ADAS with a partner
Do Now: go over the reading notes from yesterday, review the terms. Mark down homework in planner: HMWK-Read and take notes over Mod
EQ: How will the graph shift by each situation? Why?

41. Shifters of Aggregate Demand Shifters of Aggregate Supply
AD = C + I + G + X
Change in Consumer Spending
Change in Government Spending
Change in Investment Spending
Net EXport Spending
Shifters of Aggregate Supply
Change in PRODUCTIVITY
Change in Expectations
Actions by government
Change in Resource cost

42. Practice complete handout on shifting42

43. THE AD-AS MODEL IS THE MOST FREQUENTLY TESTED PART OF THE AP TEST
THE AD-AS MODEL IS THE MOST FREQUENTLY TESTED PART OF THE AP TEST. IT IS ALMOST ALWAYS IN AT LEAST ONE OF THE FRQ.
YOU MUST BE ABLE TO DRAW AND SHIFT AS WELL AS ANALYZE.
WE ARE ALWAYS CURRENTLY IN THE SHORT-RUN LEVEL. SOMETIMES OUR SHORT-RUN LEVEL OF OUTPUT IS BELOW, OR ABOVE THE ECONOMY’S POTENTIAL LEVEL OF OUTPUT.
WITH NEW RESOURCES EMPLOYED, PRODUCTIVITY IMPROVEMENTS AND TECHNOLOGY CHANGES DRIVE LONG-RUN AGGREATE SUPPLY CHANGES.

44. WHEN ASKED TO GRAPH THE EFFECT OF A CHANGE, GRAPH THE FIRST THING THAT HAPPENS IN THE SHORT-RUN UNLESS THE QUESTIONS TELLS YOU TO LOOK AT THE LONG-RUN.

45. Putting AD and AS together to get Equilibrium Price Level and Output

46. WHAT HAPPENS TO PRICE LEVEL AND OUTPUT
WHAT HAPPENS TO PRICE LEVEL AND OUTPUT? NOTE THAT THEY BOTH MOVE IN SAME DIRECTION
DEMAND SHOCKS
DEMAND SHOCKS ARE EVENTS THAT SHIFT THE AGGREGATE DEMAND CURVE
NEGATIVE DEMAND SHOCK SHIFTS LEFT AND A POSITIVE DEMAND SHOCK SHIFTS TO THE RIGHT
RGDP

47. SUPPLY SHOCKS
NOTE WHAT HAPPENS TO PRICE AND OUTPUT
SUPPLY SHOCKS SHIFT THE SRAS CURVE. THESE CAUSE THE PRICE LEVEL AND THE OUTPUT TO MOVE IN OPPOSITE DIRECTIONS.
NEGATIVE SHIFTS TO THE LEFT. THE COMBINATION OF INFLATION AND FALLING AGGREGATE OUTPUT IS CALLED STAGFLATION

48. Pe Ye

49. Inflationary and Recessionary Gaps49

50. Example: Assume the government increases spending
Example: Assume the government increases spending. What happens to PL and Output?
LRAS
Price Level AS
PL and Q will Increase
PL1
PLe
AD1 AD QY Q1
GDPR 50

51. Inflationary Gap Output is high and unemployment is less than NRU LRAS
Price Level AS
Actual GDP above potential GDP
PL1
AD1 QY Q1
GDPR 51

52. Stagnate Economy + Inflation
Example: Assume the price of oil increases drastically. What happens to PL and Output?
LRAS
Price Level
AS1 AS
PL1
Stagflation
Stagnate Economy + Inflation
PLe AD Q1 QY
GDPR 52

53. Recessionary Gap Output low and unemployment is more than NRU LRAS
Price Level
AS1
Actual GDP below potential GDP
PL1 AD Q1 QY
GDPR 53

54. AD and AS Practice Worksheet54

55. How does this cartoon relate to Aggregate Demand?55

56. Draw AD and AS at full employment
LRAS AS
Price Level P2 P1
AD2
AD=C+I+G+X Qf
(Y*or FE) Q2
GDPR
Output Increases
PL Increases 56

57. Short Run and Long Run 57

58. Shifts in AD or AS change the price level and output in the short run
LRAS
Price Level AS
PLe AD QY
GDPR 58

59. Example: Assume consumers increase spending
Example: Assume consumers increase spending. What happens to PL and Output?
LRAS
Price Level AS
PL1
PLe
AD1 AD QY Q1
GDPR 59

60. Now, what will happen in the LONG RUN?
Inflation means workers seek higher wages and production costs increase
LRAS
Price Level
AS1 AS
PL2
Back to full employment with higher price level
PL1
PLe
AD1 AD QY Q1
GDPR 60

61. AS increases as workers accept lower wages and production costs fall
Example: Consumer expectations fall and consumer spending plummets. What happens to PL and Output in the Short Run and Long Run?
Price Level
LRAS AS
AS1
AS increases as workers accept lower wages and production costs fall
PLe
Short Run -AD Falls, PL and Q fall
Long Run- AS Increases as workers accept lower wages and production costs fall. PL goes down, Q goes back to Full Employment
PL1
PL2 AD AD
AD1 Q1 QY
GDPR 61

62. Friday- closing
Objective: Today you will practice drawing and answering ADAS at equilibrium questions so that you can identify what curve shifts and what directions it will shift. L. Objective: be able to read sample questions and practice working with ADAS with a partner
Homework: Read and take notes over Mod. 20 ( ).
Exit: On post it note, write down the steps to analyze ADAS and turn it in.