Thuyết trình môn đầu tư tài chính aggregate demand and supply analysis

Chapter 23:
Aggregate Demand and Supply Analysis

1.
2.
3.

Tp. Hồ Chí Minh - 2017

Trần Thị Ngọc Hạnh
Phạm Quang Thái
Nguyễn Phi Điệp


OUTLINE
1. Aggregate Demand and Shifts in Aggregate Supply Curves

2. Aggregate Supply and Shifts in Aggregate Supply Curves

3. Equilibrium in Aggregate Demand and Supply Analysis

4. Changes in Equilibrium: Aggregate Demand Shocks

5. Changes in Equilibrium: Aggregate Supply Shocks

6. AD/AS Analysis of Foreign Business Cycle Episodes

7. The Phillips Curve and the Short-Run Aggregate Supply Curve


PREVIEW

●
●

Aggregate demand: total amount of output demanded at different inflation rates.

●
●

Equilibrium occurs at the intersection of the aggregate demand and aggregate supply curves.

Aggregate supply: total amount of output that firms in the economy want to sell at different inflation
rates.

Aggregate demand and supply analysis will enable us to explore how aggregate output and
inflation are determined.


1. Aggregate Demand and Shifts in Aggregate
Supply Curves

●

The first building block of aggregate supply and demand analysis is the aggregate demand
curve: describes the relationship between the quantity of aggregate output demanded and the
inflation rate when all other variables are held constant.


1. Aggregate Demand and Shifts in Aggregate
Supply Curves

Aggregate Demand

2.Planned investment

1.Consumption

spending

expenditure

Aggregate
Demand

4. Net exports

3.Government
purchases


1. Aggregate Demand and Shifts in Aggregate
Supply Curves
Aggregate Demand
Aggregate

1.
2.

demand

is

made

up

of

four

component

parts:

Consumption expenditure (C): the total demand for consumer goods and services;
Planned investment spending (I): the total planned spending by business firms on new machines, factories,
and other capital goods, plus planned spending on new homes;

3.

Government purchases (G): spending by all levels of government (federal, state, and local) on goods and
services (paper clips, computers, computer programming, missiles, government workers, and so on);

4.

Net exports (NX): the net foreign spending on domestic goods and services, equal to exports minus imports.


1. Aggregate Demand and Shifts in Aggregate
Supply Curves
Aggregate Demand

Y

ad

= C + I + G +NX

(1)


1. Aggregate Demand and Shifts in Aggregate
Supply Curves


1. Aggregate Demand and Shifts in Aggregate
Supply Curves
Deriving the Aggregate Demand Curve

•

When the inflation rate rises (π ↑), the monetary authorities will raise the real interest rate (r↑) => keep
inflation from spiraling out of control.

•

Next, the resulting higher cost of financing purchases of new physical capital makes investment less profitable
and causes planned investment spending to decline (I↓).

•

Because, Equation 1, planned investment spending is included in aggregate demand: the decline in planned

ad

investment spending => Y

↓. A higher inflation rate therefore leads to a lower level of the quantity of

aggregate output demanded (π↑) => (Yad↓), and so the aggregate demand curve slopes down as in Figure 1.

π ↑ => r↑ => (I↓) => (Y

ad

↓)


1. Aggregate Demand and Shifts in Aggregate
Supply Curves
Inflation
Rate, π
 ↑ , , ↑,

,,,↑

decreases aggregate demand
and shifts the AD curve to the
left

AD

1

AD2

Aggregate Output, Y

Figure 1: Leftward Shift in the Aggregate Demand Curve

8/1/17

10


1. Aggregate Demand and Shifts in Aggregate
Supply Curves
Factors That Shift the Aggregate Demand Curve
7 basic factors (often referred to as demand shocks) can shift the aggregate demand curve to a new position:

(1)
(2)
(3)
(4)
(5)
(6)
(7)

Autonomous monetary policy,
Government purchases,
Taxes,

Autonomous net exports,
Autonomous consumption expenditure,
Autonomous investment, and
Financial frictions.


1. Aggregate Demand and Shifts in Aggregate
Supply Curves
Factors That Shift the Aggregate Demand Curve
1. Autonomous monetary policy: When the Federal Reserve decides to increase this autonomous component of
the real interest rate, r, the higher real interest rate at any given inflation rate leads to a higher cost of financing
investment projects, which leads to a decline in investment spending and the quantity of aggregate demand, as the
following schematic demonstrates.

 
ad and the aggregate demand curve shifts to the left as in
Therefore aggregate demand falls at any r↑
given
inflation
=> I↑
=> Y rate
↓

Figure 1.


1. Aggregate Demand and Shifts in Aggregate
Supply Curves
Factors That Shift the Aggregate Demand Curve
2. Government purchases. An increase in government purchases at any given inflation rate adds directly to

aggregate demand expenditure, and hence aggregate demand rises:

 

ad
↑ => Y ↑

Aggregate demand, therefore, rises at any given inflation rate and the aggregate demand curve shifts to the right as
in Figure 2.


1. Aggregate Demand and Shifts in Aggregate
Supply Curves
Factors That Shift the Aggregate Demand Curve
3. Taxes:. At any given inflation rate, an increase in taxes lowers disposable income, which will lead to lower
consumption expenditure and aggregate demand, so that aggregate demand falls:.

 

ad the aggregate demand curve shifts to the left as in Figure 1.
Aggregate demand falls at any given ↑
inflation
rate
=> ↓ =>
Y and
↓


1. Aggregate Demand and Shifts in Aggregate
Supply Curves

Factors That Shift the Aggregate Demand Curve
4. Autonomous net exports: Autonomous. An autonomous increase in net exports at any given inflation rate adds
directly to aggregate demand and so raises aggregate demand:

 

=> Y

ad

↑

Aggregate demand rises at any given inflation rate and the aggregate demand curve shifts to the right as in Figure 2.


1. Aggregate Demand and Shifts in Aggregate
Supply Curves
Factors That Shift the Aggregate Demand Curve
5. Autonomous consumption expenditure:. When consumers become more optimistic, autonomous consumption
expenditure rises and so they spend more at any given inflation rate. Aggregate demand therefore rises:

 

ad
Aggregate demand rises at any given inflation rate, and
=> Ythe↑aggregate demand curve shifts to the right as in Figure
2.


1. Aggregate Demand and Shifts in Aggregate

Supply Curves
Factors That Shift the Aggregate Demand Curve
6. Autonomous investment: When businesses become more optimistic, autonomous investment rises and they

 

spend more at any given inflation rate. Planned investment increases, and aggregate demand rises.

r↑ => I↑ => Y

 

ad

ad

↓

=> Ythe↑aggregate demand curve shifts to the right as in Figure
Aggregate demand rises at any given inflation rate, and
2.


1. Aggregate Demand and Shifts in Aggregate
Supply Curves
Factors That Shift the Aggregate Demand Curve
7. Financial frictions: When financial frictions increase, the real cost of borrowing increases, so that planned
investment spending falls at any given inflation rate and aggregate demand falls.

 

=> I↓ => Y

ad

↓

Aggregate demand falls at any given inflation rate, and the aggregate demand curve shifts to the left as in Figure 1




1. Aggregate Demand and Shifts in Aggregate
Supply Curves
Inflation
Rate, π

AD

 
, , , ↑, , ,creases aggregate demand and shifts the AD

2

curve to the right

AD1
Aggregate Output, Y

Figure 2: Rightward Shift in the Aggregate

8/1/17

21


1. Aggregate Demand and Shifts in Aggregate
Supply Curves
Factors That Shift the Aggregate Demand Curve
The conclusion: Aggregate demand increases at any given inflation rate, and the aggregate demand curve shifts to
the right when there is:

 

r↓ , , ↓ , , , , => Y

ad
↑

Conversely, the aggregate demand curve shifts to the left when any of these factors change in the opposite direction.


2. Aggregate Supply and Shifts in Aggregate Supply Curves
Aggregate Supply

The long-run aggregate supply curve.

Aggregate supply curve

The short-run aggregate supply curve

Aggregate supply curve: the relationship between the quantity of output supplied and the price.


2. Aggregate Supply and Shifts in Aggregate Supply Curves
Long- Run Aggregate Supply Curve
The amount of output that can be produced in the economy in the long run is determined by:

1.
2.
3.

The amount of capital in the economy
The amount of labor supplied at full employment,
The available technology.

Some unemployment cannot be helped because it is either frictional or structural => unemployment is not at zero, but
is rather at a level above zero at which the demand for labor equals the supply of labor. This natural rate of
unemployment is where the economy gravitates to in the long run.


2. Aggregate Supply and Shifts in Aggregate Supply Curves
Long- Run Aggregate Supply Curve



The level of aggregate output produced at the natural rate of unemployment is called the natural rate of output
but is more often referred to as potential output.



Potential output is where the economy settles in the long run for any inflation rate. Hence the long-

p

runaggregate supply curve (LRAS) is vertical at potential output, denoted by Y as drawn in Figure 3.