1. CONTEMPORARY ECONOMICS© Thomson South-Western 11.4Aggregate Demand and Aggregate Supply  Explain what is meant by aggregate output and the economy’s price level.  Describe the aggregate demand curve and the aggregate supply curve, and show how they determine the equilibrium level of price and aggregate output. Objectives

2. CONTEMPORARY ECONOMICS© Thomson South-Western 11.4Aggregate Demand and Aggregate Supply  aggregate output  aggregate demand  price level  aggregate demand curve  aggregate supply curve Key Terms

3. CONTEMPORARY ECONOMICS© Thomson South-Western 11.4 Aggregate Demand and Aggregate Supply SLIDE 3 Aggregate Output Aggregate output is the total amount of all final goods and services produced in the economy during a given period. Aggregate demand is the relationship between the average price of aggregate output and the quantity of aggregate output demanded.

4. CONTEMPORARY ECONOMICS© Thomson South-Western 11.4 Aggregate Demand and Aggregate Supply SLIDE 4 The Price Level The price level is a composite measure reflecting the prices of all goods and services in the economy relative to prices in a base year.

5. CONTEMPORARY ECONOMICS© Thomson South-Western 11.4 Aggregate Demand and Aggregate Supply SLIDE 5 Real Gross Domestic Product After adjusting GDP for price changes, you end up with real GDP.

6. CONTEMPORARY ECONOMICS© Thomson South-Western 11.4 Aggregate Demand and Aggregate Supply SLIDE 6 Aggregate Demand Curve The aggregate demand curve shows the relationship between the price level in the economy and the real GDP demanded.

7. CONTEMPORARY ECONOMICS© Thomson South-Western 11.4 Aggregate Demand and Aggregate Supply SLIDE 7 Aggregate Supply Curve The aggregate supply curve shows how much output U.S. producers are willing and able to supply at each price level.

8. CONTEMPORARY ECONOMICS© Thomson South-Western 11.4 Aggregate Demand and Aggregate Supply SLIDE 8 Equilibrium The intersection of the aggregate demand curve and aggregate supply curve determines the equilibrium levels of price and real GDP in the economy.

9. CONTEMPORARY ECONOMICS© Thomson South-Western 11.4 Aggregate Demand and Aggregate Supply SLIDE 9 Aggregate Demand Supply The economy’s real GDP and price level are determined at the intersection of the aggregate demand and aggregate supply curves. Figure 11.9

10. CONTEMPORARY ECONOMICS© Thomson South-Western 11.4 Aggregate Demand and Aggregate Supply SLIDE 10 U.S. Real GDP and Price Level Since 1929 Figure 11.10