9. Aggregate Demand, Aggregate Supply, and Modern Macroeconomics

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9. Aggregate Demand, Aggregate Supply, and
Modern Macroeconomics

• What are the two main types of policy?
• Are policy decisions made by economists or
  politicians? Are they well informed?
• 9.A. Historical Development of Modern Macro
• 9.B. The AS/AD Model
• 9.C. The Aggregate Demand Curve
• 9.D. The Aggregate Supply Curve
• 9.E. The Potential Output Curve

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9. Aggregate Demand, Aggregate Supply and Modern
Macroeconomics Contd.

• 9.F. Equilibrium in the Aggregate Economy
• 9.G. Why Macro Policy is More Complicated than
  the AS/AD Model Makes it Look

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9.A. The Historical Development of Modern Macro

• What event got people thinking about
  macroeconomics?
• 9.A.1. From Classical to Keynesian Economics
• 9.A.2. Classical Economists
• 9.A.3. The Laypersons Explanation for
  Unemployment
• 9.A.4. The Essence of Keynesian Economics

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9.A.1. From Classical to Keynesian Economics

• What did economists focus on before the
  depression? What were they called?
• What were they trying to achieve or promote?
• Who was the leader in changing the focus of
  macroeconomics?

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9.A.2. Classical Economists

• What did they think happened to short-run
  economic problems?
• How long was this short-run?
• What was their advice about the Great Depression?

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9.A.3. The Laypersons Explanation for
Unemployment

• What did they think was wrong with the economy?
• How did they think this should be addressed?

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9.A.4. The Essence of Keynesian Economics

• Did Keynes deny that the Great Depression would
  ease in the long-run, or rather did he just stop
  waiting for that to happen?
• What did Keynes think was the source of the
  short-run problem?
• How did he describe what was happening in terms
  of two types of income?

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9.B. The AS/AD Model

• What are the three curves used in this model?
• What space are these curves graphed in? (Hint
  the space is the labels of the axes you are
  probably used to seeing graphs from math classes
  in x-y space).
• How many dimensions are in this space?

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9.B. Continued

• Are aggregate supply and aggregate demand the
  same thing as supply and demand?
• Are aggregate supply and demand graphed in the
  same space as supply and demand?

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9.C. The Aggregate Demand Curve

• What tradeoff is captured by the aggregate demand
  curve?
• How is this tradeoff shown by the slope of the
  curve?
• 9.C.1. The Slope of the AD Curve
• 9.C.2. Shifts in the AD Curve

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9.C.1. The Slope of the AD Curve

• What three reasons are given for the downward
  slope of the aggregate demand curve?
• What is the fourth effect noted in this section
  of the text? By itself, does this effect make the
  curve slope downward? If not, what does it do to
  the curve?

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9.C.2. Shifts in the AD Curve

• How many dimensions are shown on the graph of the
  AD curve?
• How many variables can be graphed with that many
  dimensions?
• How do we show the effects of other variables
  (when we cant draw them because weve run out of
  dimensions)?

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9.D. The Aggregate Supply Curve

• What tradeoff is captured by the aggregate demand
  curve?
• How is this tradeoff shown by the slope of the
  curve?
• 9.D.1. The Slope of the AS Curve
• 9.D.2. Shifts in the AS Curve

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9.D.1. The Slope of the AS Curve

• What is the slope of the AS curve?
• What feature of contemporary markets is Colander
  trying to capture by giving the AS that slope?
  Can you tell a story illustrating this?
• Do other authors/texts show the AS with the same
  slope as Colander does?

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9.D.2. Shifts in the AS Curve

• What two factors cause the AS to shift?
• How are prices related to wages and productivity?
• Why do those variables have to be related that
  way (hint who would win or lose if they were not
  related by the equality in the text)?

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9.E. The Potential Output Curve

• What is the slope of the potential output curve?
• Can you tell a story explaining why potential
  output should not respond to prices? What does
  this have to do with real and nominal variables?
• Do other authors/texts show potential output the
  same way as Colander? What other names are used
  for this concept?

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9.F. Equilibrium in the Aggregate Economy

• Can AD intersect AS without also intersecting
  potential output?
• Can AD intersect potential output without also
  intersecting the AS?
• 9.F.1. Short-Run Equilibrium
• 9.F.2. Long-Run Equilibrium
• 9.F.3. Integrating the Short-Run and Long-Run
  Frameworks

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9.F.1. Short-Run Equilibrium

• This occurs at the intersection of what two
  curves?
• Does that intersection have to occur near
  potential output?
• If it doesnt, what does potential output do?

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9.F.2. Long-Run Equilibrium

• This occurs at the intersection of what two
  curves?
• Does that intersection have to occur near AS?
• If it doesnt, what does AS do?

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9.F.3. Integrating the Short-Run and Long-Run
Frameworks

• If the short-run equilibrium is to the left of
  potential output, what kind of gap do we have?
• Does this (necessarily) mean that the economy is
  going to contract more? Could it?
• Does this (necessarily) mean that the economy has
  already contracted?

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9.G. Why Macro Policy is More Complicated than
the AS/AD Model Makes it Look

• 9.G.1. Three Policy Ranges
• 9.G.2. The Problem of Estimating Potential
  Output
• 9.G.3. Some Real-World Examples
• 9.G.4. Debates about Potential Output

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9.G.1. Three Policy Ranges

• What are the names of the three ranges?
• How does the flexibility of output and prices
  vary in those ranges?

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9.G.2. The Problem of Estimating Potential Output

• Are we ever exactly certain which range we are
  in?
• What does this have to do with measuring
  potential output?

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9.G.3. Some Real-World Examples

• Is potential output directly observable?
• Is potential output directly related to
  observable variables like the unemployment and
  inflation rates?
• Is there a lot of room for error?

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9.G.4. Debates about Potential Output

• Gauging potential output is so difficult that
  some economists assume it equals what?
• If this is the case, are there ever recessionary
  or inflationary gaps?
• What do we call macroeconomists who take this
  view?