21. Nominal - always one riyal - fixed
Real - what it will buy - varies
22. Lower prices
Need less money
More money to loan
Lower rates
Borrow easy
Buy more stuff
Increase output
Interest Rate Effect
Higher prices
Need more money
Less money to loan
Higher rates
Borrow harder
Buy less stuff
Decrease output
23. Exchange-Rate Effect
Lower prices
Cause interest rates to decline
Causes currency to depreciate
Stimulates demand for local
currency
Stimulates exports
Increases local output
Higher prices
Cause interest rates to increase
Causes currency to appreciate
Stimulates demand for foreign
currency
Stimulates imports
Decreases local output
25. Quiz 1
1. Name three reasons why the Aggregate-
Demand Curve slopes downward.
2. Name four reasons why the Aggregate-
Demand Curve shifts
Wealth, Interest Rate, Exchange Rate
Consumption, Investment, Government, Net
Exports (C + I + G + NX)
26. Aggregate Demand Curve
Slopes Downward
Wealth
Interest Rate
Exchange Rate
Shifts
Consumption
Investment
Government
Net Exports
30. Long Run
Run out of Adrenaline
Fall back to normal
Cannot do 110% forever
unless.....
31. Long Run Supply Curve
New Capital
Human
Physical
Intellectual
Financial
Cultural
32. Price
Level
Quantity of Output
Two Supply Curves
Short-Run
Aggregate
Supply
Long-Run
Aggregate
Supply
Price change
does not
affect the
quantity of
goods and
services
P
36. 1. Name three reasons why the Short-Run
Aggregate-Supply Curve slopes upward.
2. Name four reasons why the Short-Run
Aggregate-Supply Curve shifts
Sticky Wage, Sticky Price, Misperceptions
Capital (5 things) Expected Price Level
Quiz 2
37. 4 Step Analysis
1. Decide what curve the event affects.
2. Decide direction of the shift
3. Diagram impact
4. Analyze short-run to long-run
39. Remember
1.Three curves:AD, SRAS, LRAS
2. Event can affect one or more of the
curves
3. Determine which curve and which
direction.
4. Diagram impact
41. What if?
1. New technological innovation?
2. Large increase in money supply?
3. People become worried about the
future?
4.The supply of oil is suddenly reduced?
42. What Shifts Aggregate Demand?
1. Consumption - tax cut/increase, stock
market increase/decrease
2. Investment - interest rate decrease/
increase
3. Government Purchases - More or Less
4. Net Exports - tied to exchange rates
43. What Shifts Short Run
Aggregate Supply?
1. Capital: Cultural, Physical, Financial,
Human, Intellectual
2. Expectations: decrease-right, increase-
left
44. Can you have a nominal change
but not a real change?
Price level changes but output
stays the same