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00:00 |
(Beginning of video)
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00:00 |
It's often easier to represent ideas graphicall,y a shorthand way of doing things.
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00:07 |
So we're going to show how to represent aggregate demand and aggregate supply graphically.
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00:15 |
Be aware that this is meant to make things easier; if it doesn't make things easier for you if that's alright.
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00:21 |
Everything we do we're going to do in words as well as.
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00:28 |
Aggregate demand has remember what aggregate demand is it's the relationship between the average price level and desired spending.
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00:38 |
So if we're going to represent this graphically.
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00:42 |
Those are the things that we're going to put on our axes right ? The first thing we need to do in drawing a graph is to create the axes. So we're going to put Average price level on one axis typically we do it on the vertical axis.
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01:00 |
And then we're going to put desired spending on the horizontal axis.
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01:07 |
Now the most important thing about the aggregate demand curve is to know which way does it slope.
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01:15 |
And typically we're thinking about to the right.
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01:17 |
Does it slope Downward to the right.
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01:22 |
Or does it slope upward.
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01:25 |
Remember what we said.
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01:28 |
Beside that.
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01:29 |
As the average level of prices goes.
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01:34 |
Desired spending will go.
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01:38 |
That means we're going to get an aggregate demand curve that looks like this.
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01:44 |
Measuring GDP were spending.
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01:47 |
On the horizontal axis.
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01:50 |
We're going to measure the price level on the vertical axis and are aggregate demand curve.
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01:57 |
We know we can represent as consumer spending plus investment spending plus government spending Plus.
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02:05 |
Going to slope downward to the right.
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02:08 |
The aggregate demand curve slopes downward.
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02:12 |
That's the most important thing to know.
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02:15 |
About the aggregate demand curve.
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02:18 |
Aggregate demand curve slopes downward to the.
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02:24 |
What is that show it shows that as the average price level comes down.
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02:30 |
Is our spending increases moving out to the right.
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02:35 |
Further up to the right is greater amounts of spin.
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02:40 |
So the aggregate demand curve slopes downward.
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02:46 |
What about aggregate supply.
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02:50 |
November the aggregate supply curve.
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02:53 |
Going to show us the relationship between the total amount of.
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02:56 |
Desired production.
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02:58 |
And the average level of prices.
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03:04 |
And we argue that we could figure out that.
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03:08 |
Remember based on the idea of sticky wages.
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03:11 |
But that relationship is one where.
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03:14 |
We're going to be able to.
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03:15 |
Relate the amount of.
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03:18 |
Production.
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03:19 |
In the amount two or the level of.
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03:23 |
So we're going to do the same sort of thing graphically for aggregate supply that we did for aggregates.
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03:29 |
Price level on the vertical axis desire production or GDP.
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03:35 |
On the horizontal.
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03:37 |
Which weather is it.
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03:40 |
What's the most important thing about the aggregate supply curve.
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03:43 |
Most important thing is which way does.
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03:47 |
And we're going to say that goes like this.
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03:50 |
You measure aggregate supply abbreviated yours.
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03:54 |
Average price level on the vertical axis national income of GDP.
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03:59 |
Horizontal.
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04:01 |
Slopes upwards.
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04:04 |
The aggregate supply curve slopes upward to the right.
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04:08 |
Indicating that.
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04:10 |
Has the.
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04:11 |
Average level of prices rising.
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04:15 |
Then the desired amount of production Williams.
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04:20 |
Now.
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04:22 |
What we're going to do next maybe the trickiest part graph.
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04:26 |
We're going to show what happens when something causes aggregate demand or aggregate supply to change.
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04:35 |
For to ship.
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04:37 |
We'll use those two terms.
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04:39 |
Interchangeable shift and chain.
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04:44 |
Would you rather get the man first and remember that aggregate demand is a relationship is a relationship between desired spending and the average level of prices.
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04:55 |
Do aggregate demand tells us what buyers want to do.
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04:59 |
What they plan to do or what they desire to do.
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05:04 |
At each live different level of prices.
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05:08 |
And anything that changes that relation.
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05:11 |
Is going to cause a ship.
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05:13 |
In aggregate demand.
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05:17 |
So what can cause a shift in aggregate demand what can cause a change in the relationship between desired spending and the price.
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05:26 |
Anything that is going to make consumers want to spend more or less and every gift.
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05:33 |
Level of prices so we're changing it.
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05:38 |
Incomes are rising Brazilian people be willing and able to spend more.
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05:43 |
At every level.
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05:46 |
For a change in how people feel about saving money.
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05:52 |
Saving is the flip side.
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05:56 |
A change in people's confidence about the future of the psychology.
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06:02 |
People's feelings about the account.
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06:05 |
If people are more confident about the future they're more likely to spend the night.
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06:10 |
And more today.
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06:13 |
If people are less confident about the future they're more likely to hang on to that my.
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06:19 |
Just in case they needed.
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06:23 |
Changing conference about the future kenefick.
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06:27 |
Aggregates.
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06:28 |
So can government policy.
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06:31 |
Remember that government spending is part of aggregate demand so there's more or less government spending that can cause a Chevy in Agra.
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06:41 |
Search you can, Texas.
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06:44 |
Because that will give people more or less.
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06:47 |
Money to spend.
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06:49 |
Depending on where the taxes are.
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06:55 |
Help with nausea.
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06:57 |
A change in the average price level does not cause a shift in aggregate.
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07:06 |
Really important to keep that in.
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07:09 |
Changing the average level of prices doesn't cause a shift in aggregate demand because it's already part of the relationship we've already taken into account when we drew the aggregate demand curve slope downward.
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07:25 |
What does it look.
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07:27 |
What does it look like when we shift the aggregate demand.
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07:33 |
If we have an increase in aggregate demand.
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07:36 |
That means the entire aggregate demand curve will shift out to the.
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07:41 |
Cuz there's more desired spend.
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07:44 |
At every price.
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07:46 |
And a decrease in Agra.
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07:48 |
Lindsay a great demand curve shifts into the.
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07:53 |
Is a decrease in desire spending at every price.
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07:58 |
Pay attention to the wording.
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08:00 |
I didn't say anything shift up or down.
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08:05 |
We're going to be much better shape if we think about shifting out to the right.
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08:11 |
Games of all.
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08:14 |
Out in right left not up..
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08:19 |
Will do some examples in later on it will show us why we don't want to think about shifting up or.
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08:26 |
So what is it look.
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08:28 |
Well there's an increase in aggregate demand.
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08:32 |
Entire aggregate demand curve is shifted out to the right we have a downward-sloping.
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08:38 |
Aggregate demand curve that I've labeled the original aggregate demand.
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08:43 |
And then there's one farther out to the right.
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08:46 |
Call increased Agra.
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08:49 |
I like to put arrows.
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08:51 |
Showing the direction in which things happen.
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08:56 |
Decrease in aggregate demand is just the opposite.
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08:59 |
The aggregate demand curve is moved into the left shifted into the.
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09:05 |
Showing less less spending.
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09:09 |
In every level of rice.
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09:14 |
That's how we're going to treat aggregate demand graph.
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09:19 |
What about aggregate supply.
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09:20 |
Well it to as a relationship.
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09:23 |
Is the relationship between desire production and the average level of prices for every average level of prices.
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09:32 |
In other words it's how this what producers want to do.
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09:36 |
Different level of prices desired products.
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09:41 |
At each different level of prices.
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09:44 |
And anything that changes that relationship is going to shift aggregate.
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09:53 |
What will shift that.
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09:55 |
Aggregate supply curve what will change that relation.
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09:59 |
Basically one.
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10:02 |
A change in the cost of production.
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10:05 |
Change in the cost of production is what's going to shift aggregate.
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10:10 |
There are a number of things that could cause a change in the cost of production.
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10:14 |
Change and Technology to make it easier or harder.
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10:20 |
Changing General payment of wages.
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10:24 |
To make it more or less expensive to produce.
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10:29 |
A change in the prices of raw materials.
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10:32 |
And make it more or less expensive.
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10:36 |
Government regulation.
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10:38 |
In effect the cost of pretty.
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10:41 |
Anything that changes the cost of producing for a large number of businesses at one time.
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10:48 |
The ship..
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10:51 |
Again that was not on the list.
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10:54 |
A change in the average price level does not shift aggregate.
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10:59 |
Cuz it doesn't change the relationship because the average price levels already Park.
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11:05 |
The relationship that we're looking.
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11:09 |
What is this look like.
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12:30 |
(End of video)
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