These macroeconomics summary notes provide a concise and comprehensive overview of key concepts and principles in the field of macroeconomics. Covering topics such as GDP, inflation, unemployment, fiscal policy, and monetary policy, these notes serve as a valuable resource for anyone looking to gra...
LEARNING OUTCOMES:
o The link between aggregate demand and aggregate expenditure
o About aggregate demand (AD) and aggregate supply (AS) and the factors that cause it to change
o How AD and AS determine an economy's equilibrium price level and level of real GDP.
o How the AD-AS model explains periods of demand-pull inflation, cost-push inflation and recession
o About the investment saving schedule (IS) and liquidity and money markets (LM) concepts
o How IS and LM determine an economy's equilibrium intertest rates and level of GDP
We are going to examine how output, prices and interest rates are influenced by using The Keynesian Cross
Theory:
• Derive an AD
• Link it to AS
• Derive an IS
• Link it to LM.
Aggregate Demand = AD
Aggregate Supply = AS
Investment Savings = IS
Liquidity and Money Markets = LM
PART 1: AD-AS MODEL
The AD-AS model enables us to analyse changes in real GDP and the price level simultaneously.
A change in the price levels produces the real balances effect. High price levels reduce the real value or the
purchasing power of the public's accumulated savings balances. The real value assets such as savings accounts
or bonds, diminish.
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