OUTLINE -- CHAPTER 11
A Model of the Macro Economy: Aggregate Demand and Supply

I. Structural Adjustment Policies

1. Privatization
2. Promotion of Competition
3. Limited and Reoriented Role for Government
4. Price Reform: Removing Controls
5. Joining the World Economy
6. Macroeconomic Stability

II. Introduction

A. Macroeconomics vs. Microeconomics

1. definition -- economics
2. definition -- macroeconomics
3. definition -- microeconomics

B. Macroeconomics Issues

1. full employment
2. price stability
3. economic growth

C. The Business Cycle (149-152)

1. phases of the cycle

a. peak
b. recession
c. trough
d. recovery

2. the business cycle and the macro economic issues
3. causes: aggregate expenditures
4. secular trend

D. A Model of the Macro Economy: AD and AS

1. chapter 3: D and S
2. chapter 11: AD and AS

III. Aggregate Demand

A. Definition
B. Real Domestic Output and the Price Level
C. Graphically: downsloping -- why?

1. wealth effect
2. interest-rate effect
3. foreign purchases effect

D. Changes in AD

1. determinants of AD: FROM CLASS

1. change in consumer spending (C)
2. change in Investment spending (I)
3. change in Government spending (G)
4. change in Net Exports (Xn)
5. change in Money Supply (S)
6. change in Taxes (T)
7. change in Saving (S)

2. determinants of AD: FROM TEXT

a. C = consumer spending (and saving)

1) consumer wealth
2) consumer expectations
3) consumer indebtedness
4) taxes

b. I = investment spending

1) interest rates (money supply)
2) profit expectations on investment projects
3) business taxes
4) technology
5) degree of excess capacity

c. G = government spending
d. Xn = net export spending

1) net income abroad
2) exchange rates

3. increase and decrease in AD

IV. Aggregate Supply (AS)

A. Definition
B. Graphically

1. upsloping
2. shape

a. Keynesian (horizontal) range
b. classical (vertical) range
c. intermediate (upsloping) range

3. aggregate supply and full employment

C. Changes in AS

1. determinants of AS

a. change in input prices

1) labor
2) land (OPEC)
http://news.bbc.co.uk/hi/english/business/the_economy/newsid_300000/300492.stm
3) capital
4) entrepreneurial ability

b. changes in the productivity of resource

1) productivity
2) production
3) productive efficiency

c. legal-institutional environment

1) business taxes and subsidies
2) government regulation (red-tape)

2. increase and decrease in AS

V. Macroeconomic Equilibrium

A. Equilibrium

1. equilibrium price level
2. equilibrium real domestic output

B. Changes in AD and the Macroeconomic Issues

1. employment
2. inflation

a. demand-pull inflation
b. ratchet effect

1) graphically
2) causes

a) wage contracts
b) morale and
productivity
c) training investments
d) minimum wage
e) monopoly power

C. Changes in AS and the Macroeconomic Issues

a. employment and potential output
b. inflation -- cost-push inflation
c. stagflation

D. USING AS/AD

1. Quick Review

2. Japan 1999

http://cnn.com/WORLD/asiapcf/9901/30/world.forum.01/index.html

3. OPEC http://news.bbc.co.uk/hi/english/business/the_economy/newsid_300000/300492.stm

VI. Macroeconomic Policies

A. Stabilization Policies (p. 85)

1. definition
2. role of government in market economy

B. Demand-Management

1. definition
2. tools -- AD curve shifters (review) [changeAD]

a. fiscal policy

1) expansionary
2) contractionary

b. monetary policy (pp. 293-294)

1) easy money
2) tight money

3. AD policies and the AS curve

C. "Supply-Side Economics" (pp. 354-357)

1. shifting AS -- results
2. AS curve shifters (review)[changeAS]
3. policies

a. removing tax-transfer disincentives
b. reducing the tax wedge
c. government deregulation

VII. Historical Review of the U.S. Economy

A. Depression (pp. 206-207)
B. WWII Boom
D. Vietnam War Inflation (pp. 207)
E. Monetary Restraint: 1979 - 1982
F. Aggregate Supply Shocks in the 1970s & Early 1980s: Stagflation (pp. 341-343)

1. OPEC and energy prices
2. agricultural shortfalls
3. depreciated dollar
4. demise of wage-price controls
5. productivity decline
6. inflationary expectations and wages