Chapter 11 - Economic fluctuations. In this chapter you will: Learn about aggregate demand and the factors that affect it, analyze aggregate supply and the factors that influence it, study the economy’s equilibrium and how it differs from its potential. | Understanding Economics Chapter 11 Economic Fluctuations Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved. 2nd edition by Mark Lovewell and Khoa Nguyen Chapter Focus In this chapter you will: learn about aggregate demand and the factors that affect it analyze aggregate supply and the factors that influence it study the economy’s equilibrium and how it differs from its potential Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved. * Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved. Aggregate Demand (a) Aggregate demand (AD) is the relationship between the general price level and real expenditures (. total spending) in an economy is shown using a schedule or curve * Aggregate Demand (b) Figure , Page 260 Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved. 0 650 700 750 800 40 80 120 160 200 Aggregate Demand Curve Real GDP (1992 $ billions) Price Level (GDP deflator, 1992 = 100) Aggregate Demand Schedule . | Understanding Economics Chapter 11 Economic Fluctuations Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved. 2nd edition by Mark Lovewell and Khoa Nguyen Chapter Focus In this chapter you will: learn about aggregate demand and the factors that affect it analyze aggregate supply and the factors that influence it study the economy’s equilibrium and how it differs from its potential Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved. * Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved. Aggregate Demand (a) Aggregate demand (AD) is the relationship between the general price level and real expenditures (. total spending) in an economy is shown using a schedule or curve * Aggregate Demand (b) Figure , Page 260 Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved. 0 650 700 750 800 40 80 120 160 200 Aggregate Demand Curve Real GDP (1992 $ billions) Price Level (GDP deflator, 1992 = 100) Aggregate Demand Schedule Price Level Real GDP (1992, $ billions) Point on Graph 200 160 120 650 700 750 a b c a b c AD * Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved. The Aggregate Demand Curve Two factors cause the aggregate demand curve to be downward sloping the wealth effect means that higher prices decrease the real value of financial assets and decrease consumption, since households feel poorer (and vice versa for lower prices) the foreign trade effect means that higher prices decrease exports and increase imports (and vice versa for lower prices) * Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved. Changes in Aggregate Demand (a) AD changes are shown by shifts in the AD curve an increase in spending causes a rightward shift in the AD curve a decrease in spending causes a leftward shift in the AD curve * Changes in Aggregate Demand (b) Figure , Page 262 Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved. 0 650 700 750 800 40 80 120 160 200 .
