New classical analysis of output, prices and employment.ppt

New classical analysis of output, prices and employment
Effects of an increase
in aggregate demand
New classical analysis
The effects of an increase in aggregate demand
O
Price level
National output
AD1
SRAS1
(expected price level = P1)
Q1
a
P1
(a) Adaptive
expectations
O
Price level
National output
AD1
SRAS1
(expected price level = P1)
Q1
AD2
a
b
P2
Q2
P1
(a) Adaptive
expectations
The effects of an increase in aggregate demand
O
Price level
National output
AD1
SRAS1
(expected price level = P1)
P1
Q1
AD2
a
b
P2
Q2
SRAS2
(expected price level = P3 )
c
P3
(a) Adaptive
expectations
The effects of an increase in aggregate demand
O
Price level
National output
AD1
SRAS1
(expected price level = P1)
P1
Qn
AD2
a
b
P2
Q2
SRAS2
(expected price level = P3 )
c
P3
LRAS
(a) Adaptive
expectations
The effects of an increase in aggregate demand
The effects of an increase in aggregate demand
O
Price level
National output
AD1
SRAS1
(expected price level = P1)
Q1
P1
(b) Rational
expectations
a
O
Price level
National output
AD1
SRAS1
(expected price level = P1)
Q1
P1
(b) Rational
expectations
AD2
a
The effects of an increase in aggregate demand
O
Price level
National output
AD1
SRAS1
(expected price level = P1)
Q1
a
P1
(b) Rational
expectations
AD2
SRAS2
(expected price level = P3 )
c
P3
The effects of an increase in aggregate demand
O
Price level
National output
AD1
SRAS1
(expected price level = P1)
a
P1
(b) Rational
expectations
AD2
SRAS2
(expected price level = P3 )
c
P3
Qn
LRAS = SRAS actual
The effects of an increase in aggregate demand