Aggregate Demand: Introduction and Determinants
Student Guide (12 Points)
Name
WE JUST LEARNED to
•DISCUSS the nature of the multiplier, which shows how initial changes in spending lead to further changes
•MPC and MPS
•REVIEW the meaning of the aggregate consumption function, which shows how current disposable income affects consumer spending
•EXAMINE expected future income and aggregate wealth affect consumer spending
•LIST determinants of investment spending
•EXPLAIN why investment spending is considered a leading indicator of the future state of the economy
TODAY’S GOAL IS to
•GRAPH the Aggregate Demand Curve
•Horizontal axis
•Vertical axis
•EXPLAIN the relationship between price level and real GDP demanded
1. RESPOND to each of the concept check questions below from module 16.
• What is the multiplier effect if MPC is
• .6
• .4
• What is the multiplier effect if MPS is
• .6
• .4
2. As a class, REVIEW Tackle the Test questions 1-5 from Module 17.
3. TAKE NOTES over Module 17 PowerPoint.
Key Notes: What SHIFTS demand:
• Market Expectations
• Wealth Effect
• Existing Physical Capital (Stock)
• Fiscal Policy (taxes and spending)
• Monetary Policy (particularly interest rates)
• Click here to watch a video on your own time if you are confused.
URL:
ASSESSMENT (12 points, 2 points each)
1. Is there a shift in Aggregate Demand (AD) if the price of fruit falls? If so, which direction?
2. Is there a shift in AD if consumers and investors are pessimistic about future economic prospects? If so, which direction?
3. Is there a shift in AD if consumers have much less wealth? If so, which direction?
4. Is there a shift in AD If there is an abundance of physical capital (inventory)? If so, which direction?
5. Is there a shift in AD if the government cuts taxes and increases spending? If so, which direction?
6. Is there a shift in AD if the Federal Reserve raises interest rates? If so, which direction?
Homework: READ module 18 and ANSWER Tackle the Test questions 1-5.
TOMORROW WE WILL LEARN ABOUT