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Aggregate demand (Factors that affects aggregate demand :red_flag:…
Aggregate demand
Factors that affects aggregate demand :red_flag:
Investment spending
Interest rate (Monetary policy) :star:
Corporate tax
Perceived business opportunity
Accumulation of inventory (Unplanned investment spending)
Techonology
Consumer spending
disposable income (consumption function)
Government transfer
Tax
Employment rate
Consumer expectation
Expectation on future price
Expectation on future income
Wealth
Interest rate (monetary policy)
Net exports
Protectionism/tariff
The economic situation of other country
exchange rate
Fiscal policy
Automatic stabilizer
Progressive tax rate
Unemployment benefit (social insurance)
Discretionary policy (suggested by Keynesian)
expansionary fiscal policy
Increase in government spending
Recessionary fiscal policy
Decrease in government spending
Reasons for a downward slopping
Wealth effect
Interest rate effect
Net export effect
Multiplier effect: How much the aggregate demand would change
spending multiplier
1/(1-MPC)
Could be used for both consumption, investment, and government spending
The ratio between change in AD and change
Tax multiplier
-MPC/(1-MPC)
Smaller than spending multiplier
The change of aggregate demand divided by The change of tax collected by government
Balanced budget multiplier
1
= Spending multiplier+Tax multiplier
Increase in AD when the government increase government spending, but maintains budget balance through collecting more tax
Consequence of changes in aggregate demand :red_flag:
Rising AD (Positive demand shock)
A recessionary Gap
Y<Yp
Rising price level (First step)
Falling unemployment
Falling AD (negative demand shock)
Falling price level (First step)
High unemployment rate (First step)
An expansionary gap
Y>Yp
Aggregate supply
Long run aggregate supply
Vertical line (Classical)
Flexible wages
Intercept with x-axis at potential output
Long run macroeconomic equilibrium :red_flag:
Y=Yp
Shifts in LRAS
Change in quality of resources
Change in technology
Change in quantity of resources
Short-run aggregate supply
Factors that affects SRAS :red_flag:
Change in input price (
Second step
)
Change in nominal wages
Change in commodity price
Change in expection of inflation
Rising productivity
upward slopping (Keynesian)
Sticky wages
Imperfect information
Consequence of changing SRAS :red_flag:
Positive: market optimism
Falling price
Rising output
negative: stagflation
Rising price
Falling output
Renegotiation