Lecture 10 The Aggregate Demand and Aggregate Supply Model(宏观经济学(南开大学,龚刚).pptVIP

Macroeconomics Lecture 10 The Aggregate Supply and Aggregate Demand (AS-AD) Model I. Introduction The objective is to put all markets together and construct a hypothetical “general” equilibrium model in Macroeconomics The model in this chapter is often called the aggregate supply and aggregate demand (AS-AD) model. II. The AS-AD Model The Structural Form of the Model IS curve: Y = [C + f(i) + G]/[1－ c(1－?)] LM curve: M = h·P·Y － k·i the production function: Y = F(Ld) the wage equation: W=W(Pe, N, z) the price equation: P = P(W, U, v) the expectation equation: Pe = P the definition of N: N = 1 - Ld/L the definition of U: U=Y/AK II. The AS-AD Model The Structural Form of the Model (continued) Remark 1: , , , , are all assumed to be given as exogenous variables. c, h, k, A are all the parameters. Remark 2: We are dealing with an economy with no growth. II. The AS-AD Model The Aggregate Demand (AD) Curve The model can be explained by two curves, the aggregate demand (AD) curve and the aggregate supply (AS) curve. In particular, the aggregate demand curve is derived from IS and LM curves. II. The AS-AD Model The Aggregate Demand (AD) Curve (continued) Consider now a price increase (from P0 to P1) In the money market. This will shift the money demand curve to the right (see the figure in the next page) II. The AS-AD Model The Aggregate Demand (AD) Curve (continued) II. The AS-AD Model The Aggregate Demand (AD) Curve (continued) This further indicates a shift to the left of the LM curve (see the figure in the next page). We thus find that the output will decrease from Y0 to Y1 II. The AS-AD Model The Aggregate Demand (AD) Curve (continued) II. The AS-AD Model The Aggregate Demand (AD) Curve (continued) Therefore when price increase from P