1. Aggregate Supply/ Aggregate Demand- Application Kaplan University

2. Objectives Explain the short run aggregate supply/ aggregate demand changes. Discuss the 4 different types of shocks that affect the aggregate demand and aggregate supply.

3. Aggregate Supply Short Run Changes in Commodity Prices Changes in Nominal Wages Changes in Productivity Photo from: http://homesmnforsale.com/blog/supply-and-demand-factors-affecting-the-real-estate-industry/http://homesmnforsale.com/blog/supply-and-demand-factors-affecting-the-real-estate-industry/

4. Changes in Commodity Prices Prices of commodities increase– increasing aggregate supply in the short run causes AS to decrease; If commodity prices decrease, AS increase (inverse relationship here) Cost to produce the goods (via raw material) increase Photo from: http://www.jasonburack.com/investing-ideas/why-commodities/http://www.jasonburack.com/investing-ideas/why-commodities/

5. Changes in Nominal Wages Nominal Wages increase- AS decrease Nominal Wages decrease- AS increase Why? Photo from: http://aworldofprogress.com/blog/2011/the-high-cost-of-low-wages/wages/http://aworldofprogress.com/blog/2011/the-high-cost-of-low-wages/wages/

6. Changes in Productivity An increase in productivity- AS increases An decrease in productivity- AS decreases Why? Photo from: http://www.davidtan.org/increase-productivity-by-blocking-time-wasting-websites-in-firefox/http://www.davidtan.org/increase-productivity-by-blocking-time-wasting-websites-in-firefox/

7. Aggregate Supply A shift to the right- growth A shift to the left- shrinking economy Which is best? Why? Photo from: http://www.investopedia.com/articles/economics/08/gas-price-emails.asphttp://www.investopedia.com/articles/economics/08/gas-price-emails.asp

8. Short Run Aggregate Demand Changes in Expectation Changes in Wealth Changes in Stock of Physical Capital

9. Changes in Expectations Positive expectations- AD increases! Negative expectations- AD decreases! Ie/ expectations that commodity prices will decrease; terrorist attack Photo from: http://strangerush.com/2011/09/in-memory-91101/http://strangerush.com/2011/09/in-memory-91101/

10. Change in Wealth Increase wealth- AD increase Decrease wealth- AD decrease More money is spent in the macroeconomy! Photo from: http://awaretomillionaire.com/2012/01/11/the-power-of-learning-your-way-to-wealth/http://awaretomillionaire.com/2012/01/11/the-power-of-learning-your-way-to-wealth/

11. Change in Stock of Physical Capital Increase in physical capital= AD increase Decrease in physical capital= AD decrease ** Aggregate capital in the economy….

12. Shocks Positive demand shock Positive supply shock Negative demand shock Negative supply shock Each will affect AD or AS differently! Photo from: http://liveshareindia.blogspot.com/2011/06/popular-stock-market-crashes.htmlhttp://liveshareindia.blogspot.com/2011/06/popular-stock-market-crashes.html

13. Positive Demand Shock Good expectations Increased wealth Increased stock capital Examples…(aggregate demand increases)

14. Positive Supply Shock Technological advancement Discovery of a commodity (abundance) Examples… (aggregate supply increases) Photo from: http://www.macmyth.com/2011/09/which-macbook-air-and-mac-mini-2011-to_29.htmlhttp://www.macmyth.com/2011/09/which-macbook-air-and-mac-mini-2011-to_29.html

15. Negative Demand Shock Consumers suddenly do not demand good/ service any more Examples…. (aggregate demand decreases) Photo from: http://www.soulspace.us/2012/01/kodak/http://www.soulspace.us/2012/01/kodak/

16. Negative Supply Shock Sudden decrease in supply in item Examples….. (aggregate supply decreases) Photo from: http://www.smartvending.com/gift-ideas/bit-o-honey-wrapped-bulk-candy-5-lbs-bag---21-00509-5.htmlhttp://www.smartvending.com/gift-ideas/bit-o-honey-wrapped-bulk-candy-5-lbs-bag---21-00509-5.html

17. To Think About…. How are the current oil prices affecting the AD / AS short run curves? How do the 4 shocks affect you and the overall macroeconomy? Which shocks are most beneficial to the economy? Which are not? Why?

18. The End