Changes to SRAD
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Aggregate demand is measured by adding consumption, investment, government spending, and net exports (C+I+G+(X-M)). Congress has yet to adopt a contractionary fiscal policy because they want to continue stimulating the economy during recovery from the pandemic recession. The short-run aggregate supply curve slopes downward because in the short-run, a fall in price leads to an increase in quantity supplied as producers take advantage of the opportunity to sell existing inventory at a higher price and quantity.
Changes to SRAD
- 1. 1. Aggregate Demand may be measured by adding: A. consumption, investment, savings and imports B. Saving, government spending and business inventories C. consumption, investment, government spending and net exports D. Domestic private expenditures and government spending E. Domestic expenditures and imports 2. Why do you think Congress has yet to adopt a contractionary fiscal policy?
- 2. SRAS: Total of all goods firms are willing to supply the national economy SRAD: Total of all goods firms are willing to supply the national economy
- 3. Tyler Cowen
- 4. Why slopes downward Price & Quantity changes
- 5. Reason #1 Wealth Effect Fiat currency $$ = what it can buy Cheaper price buys more goods When prices change, value of money changes Flat screen tvs? Healthcare?
- 6. Reason #2 Investment Effect Price level falls , consumers can/will save more Interest rate decrease causes more business investment Machinery Roth IRA accounts
- 7. Reason #3 Exchange Rate Effect Depreciation of $$, leads to more expensive foreign goods Effect on imports? Effect on price level? Euro vs. US$ Peso vs. US$ Race to devalue
- 10. Changes to Aggregate Demand Pages 729-730 Choose: For each shift of AD curve, explain, give example of left and right by drawing a picture, sketch graphs (small poster for wall)