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AGGREGATE DEMAND DETERMINANT: A ceteris paribus factor that affects aggregate demand, but which is assumed constant when the aggregate demand curve is constructed. Changes in any of the aggregate demand determinants cause the aggregate demand curve to shift. While a wide variety of specific ceteris paribus factors can cause the aggregate demand curve to shift, it's usually most convenient to group them into the four, broad expenditure categories -- consumption, investment, government purchases, and net exports. The reason is that changes in these expenditures are the direct cause of shifts in the aggregate demand curve. If any determinant affects aggregate demand it MUST affect one of these four expenditures.
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Lesson Contents
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Unit 1: The Concept |
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Unit 2: Equilibrium |
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Unit 3: Doing Curves |
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Unit 4: Self Correction |
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Unit 5: Policy Preview | |
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Aggregate Market
This lesson is devoted to the exposition of the aggregate market, which combines the aggregate demand curve and the two aggregate supply curves into two related models used to analyze the macroeconomy. The main focus of this lesson is on how each of the two models, one for the short run and one for the long run, achieve equilibrium. A key conclusion is that the short-run equilibrium does not necessarily correspond to the full-employment production achieved by the long-run equilibrium. This creates recessionary and inflation gaps, which correspond to the macroeconomic problems of unemployment and inflation. - In the first unit of this lesson we ponder the basics of the aggregate market, including the importance of aggregate demand, aggregate supply, the price level, real production, unemployment, and inflation.
- Moving into the second unit, we review the concept of equilibrium and see how it relates to the aggregate market in both the short run and the long run.
- The third unit analyzes short and long-run equilibrium by combining the aggregate demand, short-run aggregate supply, and long-run aggregate supply curves.
- The topic of self-correction is examined in the fourth unit, especially how automatic shifts of the short-run aggregate supply curve can eliminate recessionary and inflationary gaps.
- The fifth and final unit of this lesson previews the use of the aggregate market to analyze business cycle stabilization policies, with particular emphasis on the time period of adjustment.
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INTERCEPT, CONSUMPTION LINE The intercept of the consumption line indicates autonomous consumption, consumption that does not depend on the level of income or production. This can be thought of as the baseline level of consumption that would be undertaken if income falls to zero. Autonomous consumption is affected by the consumption expenditures determinants, which cause a change in the intercept and a shift of the consumption line. The value of the intercept of the saving line is the negative of the value of the intercept of the saving line.
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ORANGE REBELOON
[What's This?]
Today, you are likely to spend a great deal of time searching for a specialty store trying to buy either one of those memory foam pillows or a remote controlled train set. Be on the lookout for telephone calls from long-lost relatives.
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Potato chips were invented in 1853 by a irritated chef repeatedly seeking to appease the hard to please Cornelius Vanderbilt who demanded french fried potatoes that were thinner and crisper than normal.
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"Far and away the best prize that life has to offer is the chance to work hard at work worth doing." -- Theodore Roosevelt, 26th US president
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TSE
Tokyo Stock Exchange
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