Economic Stabilization Policy
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Transcript of Economic Stabilization Policy
Economic Stabilization Policy
Macroeconomics seeks balance through supply and demand.
Macroeconomic Equilibrium
Supply and demand tools help determine equilibrium price and quantity of output
Aggregate supply assumes money supply is fixed and that a given price level prevails. If price changes, individual firms respond by
adjusting their output. After many price changes, an aggregate supply curve
can be constructed. Price level includes the price of everything produced
in the economy. Real GDP—value of all goods and services produced
Aggregate Supply and Demand
Equation of Aggregate Supply
Aggregate Supply = the sum of the GOODS and SERVICES provided in an economy. (One way to measure GDP)
Aggregate Supply and Demand
Changes in aggregate supply: INCREASE in the size and/or quality of labor
force results in a INCREASE in aggregate supply
DECREASE in the size and/or quality of labor force results in a DECREASE in aggregate supply
Aggregate Supply and Demand
Changes in aggregate supply: INCREASE in the size and/or quality of capital
stock results in a INCREASE in aggregate supply
DECREASE in the size and/or quality of capital stock results in a DECREASE in aggregate supply
Aggregate Supply and Demand
Changes in aggregate supply: Technological progress results in a RISE in
Aggregate Supply, INCREASE in the factor productivity of labor and
land results in an INCREASE in Aggregate Supply DECREASE in the factor productivity of labor and
land results in an DECREASE in Aggregate Supply
Aggregate Supply and Demand
INCREASE in the Wage Costs per Unit of Output results in a DECREASE in Aggregate Supply
DECREASE in the Wage Costs per Unit of Output results in a INCREASE in Aggregate Supply
Inflation Expectations
Aggregate Supply and Demand
An INCREASE in Producer Taxes results in a DECREASE in Aggregate Supply
A DECREASE in Producer Taxes results in an INCREASE in Aggregate Supply
An INCREASE in Producer Subsidies results in an INCREASE in Aggregate Supply
A DECREASE in Producer Subsidies results in a DECREASE in Aggregate Supply
Aggregate Supply and Demand
Aggregate Supply and Demand
Aggregate demand is the total of all demand in the economy.
Aggregate Demand = C + I + G + NX (Is this familiar?)
The aggregate demand curve shows the amount of total output purchased at every price level
Aggregate Supply and Demand
Changes in aggregate demand An increase in C, I, G, or NX will
result in an INCREASE in Demand. (Shift to the right)
A decrease in C, I, G, or NX will result in an DECREASE in Demand. (Shift to the left)
Aggregate Supply and Demand
Aggregate Supply and Demand
Aggregate supply and demand curves provide a framework to help analyze the impact of economic policy proposals on economic growth and price stability.
Macroeconomic equilibrium is the point at which the level of real GDP is consistent with a given price level
The equilibrium will change if either AS or AD changes.
Macroeconomic Equilibrium
Macroeconomic Equilibrium
Macroeconomic Equilibrium