About This Chapter
Overview of Aggregate Demand & Supply - Chapter Summary
This chapter allows you to review economic models and concepts relating to aggregate supply and demand. Topics you can expect to study include aggregate supply and demand, labor demands and spending as it impacts demand and supply. Each lesson provides detailed examples and definitions of important terms to ensure your understanding of this material. After you have reviewed this chapter, you should be able to:
- Outline the Keynesian and classical models of the economy and explain differences between and supply and demand curves in these two models
- Provide details about the aggregate supply and aggregate demand model
- Understand what causes shifts in the demand for and supply of labor
- Define and apply the formulas for marginal propensity to consume and marginal propensity to save
- Detail how government spending and borrowing can 'crowd out' private investment
- Identify determinants of aggregate supply in the economy
- Relate what is meant by the term 'sticky wages' and what this leads to
- Define the two types of supply shocks
- Explain how consumption function is related to marginal and average propensity to consume
- Detail the relationship between the multiplier effect and marginal propensity to consume
Our expert instructors guide you through this material with simple language and helpful examples. After each lesson, take the corresponding self-assessment quiz to determine how much you have retained and whether you are ready to move on through the chapter. You can monitor your progress using your Dashboard.
1. The Keynesian Model and the Classical Model of the Economy
Economists use two basic models to describe economic growth. In this lesson, you'll find out more about each one of these models using real-world examples. So buckle up your seatbelts!
2. Supply and Demand Curves in the Classical Model and Keynesian Model
See how economists illustrate aggregate supply and aggregate demand in the long-term and short-term using the Classical and Keynesian models. This lesson emphasizes the differences in the shape of the aggregate supply curve using these two models.
3. Aggregate Supply and Aggregate Demand (AS-AD) Model
Supply and demand models are useful for examining the behavior of one good or market, but what about looking at a whole economy? Luckily, the aggregate supply and aggregate demand model lets us do just that.
4. Understanding Shifts in Labor Supply and Labor Demand
Find out what the labor supply is and what causes it to change or shift. Learn about labor demand and what causes firms and markets to increase or decrease their demand for labor.
5. Marginal Propensity to Consume: Definition and Formula of the MPC
MPC or MPS, what category is higher when you have extra money? In this lesson, learn about the marginal propensity to consume, one of the most important assumptions underlying fiscal and monetary policy.
6. Government Spending, GDP, and Crowding Out Private Investment
When the government spends more than it earns, it has to borrow money, which has repercussions throughout the economy. In this lesson, learn how government spending can crowd out private investment in the market for loanable funds.
7. Aggregate Supply in the Economy: Definition and Determinants
Learn about one of the fundamental components of economics. Find out what aggregate supply is and seven of the most common areas that influence it in today's economy.
8. Aggregate Supply in the Short Run
Learn about aggregate supply in the short run (SRAS) and what that really means. Find out how the overall price of goods affects quantity supplied in the short run and other key determinants that can increase and decrease aggregate supply in this time period.
9. Sticky Wages and Prices: Effect on Equilibrium
With the help of real-world examples, this lesson explains Keynes' important observation that wages and prices often don't adjust quickly to changes in economic conditions
10. Favorable Supply Shocks & Unfavorable Supply Shocks
In this lesson you'll learn the definitions, causes and effects of the two types of supply shocks in the economy by looking at a fictitious economy as an example.
11. Impact of Marginal Propensity to Consume on Individual & National Economy
In this lesson, we will learn about marginal propensity to consume. We will learn what it is and how it affects both individuals as well as the economy. When the lesson concludes, you will be able to test your knowledge with a quiz.
12. Marginal Propensity to Save: Formula & Relationship to MPC
In this lesson we will learn what happens when we receive extra income. Specifically, we will look at marginal propensity to save and the formula used to calculate it. The lesson will end with a summary and a quiz to test your knowledge.
13. Consumption Function: Relationship Between Marginal & Average Propensity to Consume
The United States economy is primarily driven by consumption. In this lesson, you'll learn about consumption, marginal propensity to consume, and average propensity to consume. A short quiz follows.
14. Marginal Propensity to Consume & Multiplier Effect
Can you remember the last time you splurged and bought something you have always wanted? While that probably had an enjoyable effect on you, what were the effects of your spending on the economy? In this lesson, we will answer that question as we explore marginal propensity to consume.
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Other chapters within the AP Macroeconomics: Exam Prep course
- Scarcity, Opportunity Cost & Production Possibility Curves
- Understanding Comparative Advantage, Specialization & Exchange
- Market Equilibrium, Supply & Demand
- Basics of Measuring the Economy
- Inflation & Adjustment in Economics
- Unemployment Basics
- Understanding Inflation & Unemployment
- Understanding Macroeconomic Equilibrium
- Understanding Economic Growth and Productivity
- Money & the Market
- The Central Bank & Monetary Policy
- Fiscal & Monetary Policies in Economics
- Foreign Exchange & Trade Balance
- Overview of Inflows, Outflows & Restrictions
- AP Macroeconomics Test Information & Strategy