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16,17. Session

This document outlines a lesson on macroeconomic concepts including aggregate demand, aggregate supply, macroeconomic equilibrium, and a dynamic aggregate demand and supply model. It discusses key determinants and shifts of the aggregate demand and supply curves. It also explains the differences between movements along the curves versus shifts, and differences between short-run and long-run macroeconomic equilibrium. Factors that cause price stickiness and an upward-sloping short-run aggregate supply curve are identified.

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Aman Singh
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47 views

16,17. Session

This document outlines a lesson on macroeconomic concepts including aggregate demand, aggregate supply, macroeconomic equilibrium, and a dynamic aggregate demand and supply model. It discusses key determinants and shifts of the aggregate demand and supply curves. It also explains the differences between movements along the curves versus shifts, and differences between short-run and long-run macroeconomic equilibrium. Factors that cause price stickiness and an upward-sloping short-run aggregate supply curve are identified.

Uploaded by

Aman Singh
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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MACROECONOMICS – I

SESSION 16&17:AD-AS

INTEGRATED PROGRAMME IN MANAGEMENT (IPM)


BATCH:2018-23 TERM:II
AY2018-19

Outline

• Aggregate Demand
• Aggregate Supply
• Macroeconomic Equilibrium in the Long Run
and the Short Run
• A Dynamic Aggregate Demand and Aggregate
Supply Model

Macroeconomics-I IPM Term–II 2

1
Aggregate Demand

• Identify the determinants of AD


• Distinguish between a movement along the
AD and a shift of AD curve

Macroeconomics-I IPM Term–II 3

Aggregate Demand

Q. Why is the AD curve downward sloping?


A. Due to wealth effect, interest-rate
effect, international trade effect

Macroeconomics-I IPM Term–II 8

2
Shift of Aggregate Demand Curve

• The variables that cause AD curve to shift


fall into three categories:
– Changes in government policies
– Changes in the expectations of households and
firms
– Changes in foreign variables

Macroeconomics-I IPM Term–II 14

Aggregate Supply

• Identify determinants of AS
• Distinguish between movement along the
short-run AS curve and a shift of the
curve
• Effect of changes in P-level on AS is
different in short run from that in the
long run, use two AS curves: one for the
short run and one for the long run

Macroeconomics-I IPM Term–II 24

3
Short-Run Aggregate Supply Curve

Three common explanations for an upward-


sloping SRAS curve:
1.Contracts make some wages and prices
“sticky”
2.Firms are often slow to adjust wages
3.Menu costs make some prices sticky

Macroeconomics-I IPM Term–II 29

Macroeconomic Equilibrium in Long Run and Short Run

Use AD and AS model to illustrate the


difference between short-run and long-run
macroeconomic equilibrium

Macroeconomics-I IPM Term–II 37

4
Recessions, Expansions, and Supply Shocks

• Full analysis of AD-AS model can be


complicated, begin with a simplified case,
using two assumptions:
1.The economy has not been experiencing any
inflation
2.The economy is not experiencing any long-
run growth

Macroeconomics-I IPM Term–II 39

Dynamic AD-AS Model


• The difficulty with the basic AD-AS
arises from the following two
assumptions:
(1) The economy does not experience
continuing inflation
(2) The economy does not experience long-
run growth
• Develop AD-AS model by dropping these
assumptions

Macroeconomics-I IPM Term–II 44

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