1. Aggregate Demand- Aggregate Supply

2. r Ms AE
Y=AE AE r*
r***
r** Md M Y M*
M** Y* Y
Y** P AS
P**
Overall:
Increase MS from M* to M**
Decrease r* to r***
Increase Y* to full employment Y
Increase Prices from P* to P** P* AD Y Y* Y
Y**

4. Historical Recessions
1973 Oil Embargo
Quadrupling of oil prices (Negative Supply Shock)
Spending on War
Positive Demand Shock
Stock market crash
Negative Demand Shock
Which shock drove the recession?

7. Historical Recessions
Small recession in 1979 due to energy crisis
Iran limited oil exports, increasing price
Negative Supply Shock
Savings and Loan Crisis
Problems in the mortgage market
Negative Demand Shock
What was the overall outcome?

10. Historical Recessions
1990 Oil Price Increase (Negative Supply Shock)

13. Historical Recessions
Dot-Com Bubble
9/11 Attacks
Both (Negative Demand Shocks)
Expectation?

16. Great Recession
Housing Market Crash

18. Great Depression

19. Great Depression