ADShifts:ChangesinForeignVariablesIf foreign incomes rise more slowly than ours, their imports of ourgoods fall; if ours rise more slowly, our imports fall.If our exchange rate (the value of the suS) rises, our exports becomemoreexpensive,soforeigners buylessofthem (andwebuy moreimports, also).shifts the aggregatebecause..An increase in...demand curve..PricethegrowthrateofimportswillincreasefasterthanleveldomesticGDPrelativeexports,reducingnetexportstothegrowthrateofforeign GDPAD2AD0RealGDPthe exchange ratePriceimportswill riseandexportslevel(thevalueofthedollar)will fall,reducingnet exportsrelative to foreigncurrencies0RealGDPTable 13.1Variablesthat shifttheaggregate demand curve@2015PearsonEducation,Inc.11
© 2015 Pearson Education, Inc. 11 AD Shifts: Changes in Foreign Variables If foreign incomes rise more slowly than ours, their imports of our goods fall; if ours rise more slowly, our imports fall. If our exchange rate (the value of the $US) rises, our exports become more expensive, so foreigners buy less of them (and we buy more imports, also). Variables that shift the aggregate demand curve Table 13.1 shifts the aggregate An increase in. demand curve. because
MakingRecessions andthe Componentsof AD-part1theConnectionWe can understand the 2007-2009 recession better by examiningwhat happened to the components of real GDP.(The red bar indicates the period of the recession, per the NBER)ConsumptionPercentageofpotentialGDP8%spending fell, relativeto potential GDP76during the recessionConsumption5This was unusual:4consumption3usually stays2steady during a1recession.200520062007200820092010201120122013Consumption alsostayed low inthefourpost-recession years2@2015PearsonEducation,lnc
© 2015 Pearson Education, Inc. 12 Making the Connection Recessions and the Components of AD—part 1 We can understand the 2007-2009 recession better by examining what happened to the components of real GDP. (The red bar indicates the period of the recession, per the NBER). Consumption spending fell, relative to potential GDP during the recession. • This was unusual: consumption usually stays steady during a recession. Consumption also stayed low in the four post-recession years
MakingRecessions and theComponents of ADpart2theConnectionResidential investment had been falling before the recession, andcontinued to fall during it.Spending onresidentialPercentage ofinvestment haspotential GDP8%continuedto be7below the pre-6recessionboom5levels.Residential4investment32120052006200720082009201020112012201313@2015PearsonEducation,lnc
© 2015 Pearson Education, Inc. 13 Making the Connection Recessions and the Components of AD—part 2 Residential investment had been falling before the recession, and continued to fall during it. Spending on residential investment has continued to be below the prerecession boom levels
MakingRecessions and the Components of AD-part3theConnectionNet exports increased (became less negative) just before and duringthe recession.. This was in part due to the falling value of the sUSPercentageofAfter the recession,potential GDPnet exports started to0%20062007200820092010201120122013decreaseoncemore,-1but then have stayed-2relatively steady.-3.Loose monetary-4policy has kept theNetexports-5value of the sUS-6down.@2015PearsonEducation,Inc.14
© 2015 Pearson Education, Inc. 14 Making the Connection Recessions and the Components of AD—part 3 Net exports increased (became less negative) just before and during the recession. • This was in part due to the falling value of the $US. After the recession, net exports started to decrease once more, but then have stayed relatively steady. • Loose monetary policy has kept the value of the $US down
AggregateSupply13.2LEARNINGOBJECTIVEIdentifythedeterminantsofaggregatesupplyanddistinguishbetweenamovement along the short-run aggregate supply curve and a shift of the curve.15@2015PearsonEducation,lnc
LEARNING OBJECTIVE © 2015 Pearson Education, Inc. 15 Aggregate Supply 13.2 Identify the determinants of aggregate supply and distinguish between a movement along the short-run aggregate supply curve and a shift of the curve