Principles of Macroeconomics: Chapter 7 – Aggregate Demand and Aggregate Supply
What are the Possible Causes of Higher Oil Prices on the Overall Economy?
Principles of Macroeconomics 2e: Chapter 11 – The Aggregate Demand/Aggregate Supply Model
Bureau of Economic Analysis
Bureau of Labor Statistics
Aggregate Demand and Aggregate Supply: Course Map & Recommended Resources
The aggregate demand and supply model provides a comprehensive and intuitive explanation of changes in the price level, actual real GDP, and potential real GDP. Students will employ the AD-AS model to examine short-run cyclical changes in the economic and long-run changes in potential real GDP. The AD-AS graphs give the students an analytical tool by which to illustrate how changes in several economic variables and policy will impact important economic indicators and overall economic performance in the short run and long run.
Demonstrate how the AD curve illustrates the relationship between the price level and aggregate quantity demanded (5,8)
Identify and analyze determinants of AD (5,8)
Demonstrate how the short run AS curve illustrates the relationship between the price level and the aggregate quantity supplied in the short run (5,8)
Identify and analyze determinants of short run AS (5,8)
Distinguish between the short run and the long run (5,8,13)
Explain the function of the long run AS curve (5,8,13)
Explain and illustrate long run and short run macroeconomic equilibria (5,8)
Analyze the impact of curve shifts on macroeconomic indicators (5, 8, 9)
Demonstrate the automatic adjustment mechanism for restoration of full employment output (5, 8, 9)
NOTE: This Module meets Ohio TAGs 5, 8, 9, 13 for an Intro to Macroeconomics Course
Recommended Textbook Resources
- The chapter covers all the learning objectives regarding AD-AS model. It develops explanations of the AD and SRAS curves and their determinants. Enough attention is given to the LRAS curve as well. It contains numerous graphical examples of the impacts of the various AD and AS determinants on the price level and real GDP. It revisits the discussion of the relevance of the position of the LRAS to a nation’s economic growth.
- Authored by: University of Minnesota (2016). Provided by: University of Minnesota Libraries.
Supplemental Content/Alternative Resources
- This resource enables students to conduct interactive, graphical exercises on a long list of the determinants of AD, SRAS, and LRAS. Students are able to demonstrate shifts in AD, SRAS, and LRAS and their impacts on the price level, real GDP (output) and potential GDP (output).
- Authored by: Denis Kaufman (November 2014). Provided by: TeachingWithData.com, OER Commons.com.
- In the AD-AS model resource prices are considered a short-run aggregate supply shifter. This article provides an overview of the potential impacts of increases on oil prices on supply curves and the overall economy.
- Provided by: Federal Reserve Bank of San Francisco, Dr. Econ (November 2007).
- This chapter of this text resource covers most of the learning objectives. It can serve as the primary resource for instructors who may not cover the automatic adjustment to full employment output (Learning Objective #9).
- Authored by: S. Greenlaw and Shapiro et. al. (June 4, 2018). Provided by: OpenStax CNX.
Identify AD and AS Shifters Using BEA Information
Go to Bureau of Economic Analysis.
Review trends in real GDP data. Based on Current Releases, is real GDP growth trending upward or downward? Identify 2-3 reasons for current changes in real GDP growth. Explain the trend/changes using the AD-AS model by identifying possible AD and SRAS shifters in the report.
The report usually discusses the positive and negative contributors to real GDP changes. Students can be asked to explain these contributors in light of changes in the components of aggregate spending (Consumption, Investment, Government Expenditures, Net Exports) and the expected direction of shifts in AD and effects on real GDP. Also, students may include explanations of contributors such as changes in resource/input prices, business taxes, and/or technology and the expected direction of shifts in the SRAS curve, and effects on real GDP.
Identify AD and AS shifters using BLS Data
Go to Bureau of Labor Statistics.
Under Latest Numbers, review the current release of CPI information. Data on recent trends can be found under “Consumer Price Index Summary” and Table. 1. Is the CPI increasing or decreasing? Identify 2-3 reasons for the changes in the CPI. Explain the recent direction of change in the CPI using the AD-AS model, by identifying possible AD and SRAS shifters in the report.
Students may use CPI information to explain changes in input/resource costs and their impacts on the AS curve. Also, ask students to identify and discuss examples of increases/decreases in the components of aggregate spending that may have led to an increase in the CPI using the AD-AS model.
Active Learning Exercise
Interactive AD-AS Exercises
The exercise will enable students to Identify AD and AS shifters for the U.S. economy using current articles/periodicals on the U.S. economy. Require that students find and read two current articles that discuss the current and projected future performance of the U.S. economy. In each of the articles, identify at least one determinant of aggregate demand (AD) and one determinant of short run aggregate supply (SRAS). Explain how a change in each of these determinants will shift the AD or the SRAS curve, and then the potential impacts on equilibrium real GDP and the average price level.
The interactive resource below (also recommended as an Alternative Resource above) may be employed by the students as they examine the links between available information on the economy and the AD-AS model.
- Authored by: Denis Kaufman (November 2014). Provided by: TeachingWithData.com, oercommons.org.
This resource enables students to conduct interactive, graphical exercises on a long list of the determinants of AD, SRAS, and LRAS. Students are able to demonstrate shifts in AD, SRAS, and LRAS and their impacts on the price level, real GDP (output) and potential GDP (output).