Introduction to Macro Economics

TOPIC III: Aggregate Demand and Aggregate Supply

OBJECTIVES: 
  1. identify macro-economic goals.
  2. identify and explain aggregate demand (AS) and aggregate supply (AS).
  3. explain various economic conditions given information on AS and AD.
  4. explain the slopes of AS and AD and the nonprice determinants of supply and demand.
  5. define and explain inflation and how it occurs.
  6. define and explain the GNP gap
  7. define and explain the different kinds of unemployment that may exist in the economy.
  8. prescribe or evaluate a tentative policy measure that would (or should) induce a desired affect on national income and price levels.

KNOW THE FOLLOWING TERMS

Aggregate Demand (AD)

Aggregate Supply (AS) 

Keynesian Range

Classical Range 

Intermediate Range

Supply Side Economics 

Stagflation 

Recession

Depression

Inflation

GDP Gap

Structural Unemployment 

Frictional Unemployment

Cyclical Unemployment 

Business Cycle

Demand Shocks 

Supply Shocks

KEY CONCEPTUAL QUESTIONS

  1. Are all kinds of unemployment necessarily harmful?
  2. What policy prescriptions could be used to ease some of the unemployment problems?
  3. Why is the aggregate demand curve downward sloping?
  4. Why does the aggregate supply curve have three ranges?
  5. Explain demand pull inflation in terms of AD/AS Explain stagflation using AD/AS analysis.