Analysis of AD & AS Continued
AP Macroeconomics
Where we came from…
Previously, we learned
the similarities and
differences between
the simple Keynesian
model and the AD &
AS model so that we
could reconcile them
with one another.
Visual 3.11, Unit 3 Macroeconomics, National Council on
Economic Education, http://apeconomics.ncee.net
Where are we going?

Let’s review the
factors that shift the
Aggregate Demand
curve:




Changes in
consumption
Changes in investment
Changes in taxes
Changes in the money
supply
http://www.cooperativeindividualism.org/calvin-on-supply-anddemand.jpg
Where are we going?
Let’s
review the factors
that shift the Aggregate
Supply curve:
Changes in
resource/commodity prices
Changes in technology
Changes in wage rates
Changes in labor
productivity
Changes in expectations

http://2.bp.blogspot.com/-hWakW2FAJs8/T3SI3ty43FI/AAAAAAAAAU8/HYUiHX4B70/s1600/funny-cartoons-supply-and-demand.gif
What’s a shock?
A supply or demand shock is caused by an
event that shifts the curve.
Effects of a Supply Shock
For supply, a supply shock is
caused by a changes in
commodity prices, nominal
wages, or productivity.
A negative supply shock raises
production costs and lessens
the quantity that producers are
willing to produce at any given
aggregate price level. This
shifts the supply curve
leftward.
A positive supply shock reduces
production costs and increases
the quantity of goods supplied
at any given aggregate price
level. This shifts the supply
curve to the right.
Effects of a Demand Shock



Expectations of wealth,
government spending,
autonomous consumption –
all things that shift demand.
A positive demand shock
shifts the demand curve to
the right. It increases the
quantity demanded at any
given aggregate price level.
A negative demand shock
shifts the demand curve to
the left, and decreases the
quantity demanded at any
given aggregate price level.
And now…

Some resources:
http://www.reffonomics.com/textbook2/macroec
onomics2/keynesianthought/keynesiancross.
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Works Cited




Economics of Seinfeld. Demand.
http://yadayadayadaecon.com/clip/46/
Krugman, Paul, and Robin Wells. Krugman’s
Economics for AP. New York: Worth
Publishers.
Morton, John S. and Rae Jean B. Goodman.
Advanced Placement Economics: Teacher
Resource Manual. 3rd ed. New York: National
Council on Economic Education, 2003. Print.
Reffonomics. www.reffonomics.com.