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Chapter 9
AGGREGATE DEMAND
WHAT IS THIS CHAPTER ALL ABOUT?

This chapter provides a close look into the demand side of product markets. Using the aggregate
supply/aggregate demand analysis, the chapter investigates the market forces on the aggregate
demand curve. The components of aggregate demand are identified and each component is
investigated in detail. Keynes focused on aggregate demand for solutions to macro failures.
This chapter focuses on three questions:
1. What are the components of aggregate demand?
2. What determines the level of spending for each component?
3. Will there be enough demand to maintain full employment?
LEARNING OBJECTIVES: After reading this chapter, the students should know:
1. What the major components of aggregate demand are.
2. What the consumption function tells us.
3. The determinants of investment spending.
4. How and why AD shifts occur.
5. How and when macro failure occurs.
NEW TO THIS EDITION

The changes to this chapter include:
 Updated spending parameters
 New In the News article on overspending
 New In the News on disposable income
 New In the News on Consumer Confidence
 New In the News on Business Investment
 New In the News on Government Spending Cuts
 New In the News on Leading Indicators
 1 updated Discussion Question
 6 updated Problems
LECTURE LAUNCHERS
How long will this chapter take? Three or four 75-minute class periods.
Chapter 9 – Aggregate Demand

© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner.
This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Where should you start?
1. Ask students who they think purchase the goods and services produced in a nation.
Try to get the students to list the four areas of aggregate spending in the economy, i.e.
consumers, businesses, governments, and foreigners. This leads into the discussion of
the components of aggregate demand.
2. Another idea is to talk about students’ consumption patterns.

What factors change that stimulates consumption changes? How do they respond to
credit, expectations, inflation, aging, and wealth changes? Launch into individual
consumption functions and other components of aggregate demand. This leads into a
discussion of the shift factors.
3. Ask students if they were given an extra $100 by a friend, parent, uncle, etc., how much of it
would they spend?
This question leads into a discussion of the marginal propensity to consume and save.
If they say they would spend all $100, then their marginal propensity to consume is
probably close to 1.0 and their marginal propensity to save is close to zero.t
4. As in the previous chapter, it is possible to draw upon your students' recent experiences. Ask
if any know of recent business openings or closings.
Many will have heard something about changing government policies and business
conditions. They may be aware of major plant openings or closings in the area or
nationwide. They will be interested in offering their opinions and ideas about the
causes of these changes. Cite recent examples of plant openings or closings in your
area. If nothing has happened in your area, cite changes in the auto industry, defense,
or the aerospace industries. Has the volume imports or exports changed recently?
Why have any of these changes occurred? All of these issues affect aggregate demand.
5. You could also discuss the computer industry.

Why has hiring occurred in this industry? Why is there a high demand for computer
science graduates in recent years? This type of questions all lead into discussions of AD
and its determinants.
6. Use the aggregate supply/aggregate demand analysis to show unemployment.
Describe how to get to full employment using the aggregate demand. Note: there is no
automatic self-adjustment in a Keynesian model.
COMMON STUDENT ERRORS

Students often believe the following statements are true. The correct answer is explained after
the incorrect statement is presented.
1. The economy can spend no more than its income. The economy can spend more than its
income by drawing down inventories of both public and private goods or by consuming
capital (allowing it to depreciate) without replacing it. If the economy consumes more than
its income, it will actually dissave and experience negative investment.
2. When a person invests in stocks, investment expenditures increase. Investment

expenditure refers to purchases of new capital goods (buildings and equipment, etc.),
inventories, or residential structures. A purchase of stock represents a transfer of ownership
from one person to another. Sometimes such purchases are called “financial investments,”
but they do not represent economic investment. You should note for the student that the
term investment is used differently in economics than in a finance or accounting course.
3. The aggregate expenditure curve is the same as the aggregate demand curve. The
aggregate expenditure curve and aggregate demand curves are two quite different concepts.
They have different units on the axes; aggregate expenditure represents the intended
expenditures at each income level; aggregate demand represents quantity demanded at each
average price level for all goods and services.
4. The marginal propensity to consume is consumption divided by income. There is a big

difference between total consumption and a change in consumption. While the average
propensity to consume involves total consumption and total income, the marginal
propensity to consume involves changes in consumption and changes in income.
5. Dissaving is the difference between the 45-degree line and aggregate expenditure curves.
Both saving and dissaving are defined as the difference between disposable income and
consumption. Thus, it is the difference between the 45-degree line and the consumption
function that measures savings. The 45-degree line shows the points at which expenditures
equals income. So, when consumption expenditures equals income (the consumption
function intersects the 45-degree line), there is zero savings. When consumption
expenditures exceed income (the consumption function is above the 45-degree line), there
will be dissaving.
6. Aggregate expenditure rises when people buy more imports. Students often think of
imports as expenditures and therefore believe that increased spending on imports will have
the same effect on the economy as an increase in consumption. Expenditures on imports,
however, do not generate domestic income. If imports increase, they do so at the expense of
purchases of U.S. goods, meaning fewer jobs in the United States. Because employment
declines, there is less income with which to purchase goods; consumption falls and so does
aggregate spending.
ANNOTATED OUTLINE
I. Introduction
A. The last quarter of 2008 was terrible for the U.S. economy. Two million jobs were lost, a
dozen automobile plants were shut down, and house prices continued to decline.
B. We have seen how the economy slips into recession and how it recovers.
1. Key to both is aggregate demand. Shift to the left and we get recession, to get out
of the recession, AD must shift to the right.
2. How can we get aggregate demand to shift in the real world?
C. This chapter and the next two chapters focus on demand side of the macro economy by
starting with the same questions Keynes posed:
1. What are the components of aggregate demand?
2. What determines the level of spending for each component?
3. Will there be enough demand to maintain full employment?

II. Macro Equilibrium
A. Definition: Aggregate Demand – The total quantity of output demanded at
alternative price levels in a given time period, ceteris paribus.
B. The Desired Adjustment (Figure 9.1)
1. Definition: Aggregate Supply – The total quantity of output producers are
willing and able to supply at alternative price levels in a given time period, ceteris
paribus.
2. Definition: Equilibrium (macro) – The combination of price level and real
output that is compatible with both aggregate demand and aggregate supply.
3. Equilibrium is established where AS and AD intersect.
4. This equilibrium may or may not be consistent with full-employment.
5. All economists recognize that short-run macro failure unemployment is possible.
6. A central macroeconomic debate is over whether or not the AS and AD curves will
shift on their own.
C. Components of aggregate demand
1. In analyzing AD, we ask
a. Who is buying the output of the economy?
b. What factors influence their purchase decisions?
c. What factors might change the level of spending, thereby shifting aggregate
demand?
d. Why aren’t people buying more output?
2. Four components of aggregate demand
 Consumption (C).
 Investment (I).
 Government spending (G).
 Net exports (X -M).
III. Consumption
A. Consumption is the largest component of aggregate demand.
1. Definition: Consumption - Expenditure by consumers on final goods and
services.
2. Consumer expenditures account for over two-thirds of total spending.
B. Income and Consumption (Figure 9.2)
1. The aggregate demand curve asserts that the real value of output depends on the
price level.
2. Price level, interest rates, wealth, etc. might influence consumer spending, but
the most decisive influence is disposable income (DI).
3. Definition: Disposable Income – After-tax income of consumers; personal
income less personal taxes.
4. By definition, all disposable income is either consumed (spent) or saved (not
spent).
5. Formula
Disposable Income (YD )  Consumptio n (C)  Saving (S)
C. Consumption vs. Saving

1. Keynes was interested in how consumers divide their disposable income between
consumption and saving.
2. Definition: Saving – That part of disposable income not spent on current
consumption; disposable income less consumption.
3. Two distinct decisions are involved:
a. What fraction of total disposable income is spent on consumption?
b. What fraction of added disposable income is spent on consumption?
4. Definitions: Average Propensity to Consume (APC) – Total consumption
in a given period divided by total disposable income.
Average Propensity to Save (APS) – Total savings in a given period divided
by total disposable income.
5. Formulas
Total Consumptio n C
APC  
Total Disposable Income YD
Total Savings S
APS  
Total Disposable Income YD
6. In the News: “Overspending”

Four out of ten Americans admit to overspending.
D. The Marginal Propensity to Consume (Figure 9.3)
1. Definition: Marginal propensity to consume (MPC) – The fraction of
each additional (marginal) dollar of disposable income spent on consumption;
the change in consumption divided by the change in disposable income.
2. Formula
Change in Consumptio n C
MPC  
Change in Disposable Income YD
E. Marginal Propensity to Save (MPS)

1. Definition: Marginal Propensity to Save (MPS) – The fraction of each
additional (marginal) dollar of disposable income not spent on consumption; 1 –
MPC.
2. Formula
S
MPS  1 - MPC or
YD
IV. The Consumption Function

A. Autonomous consumption
1. Keynes first noted that consumption is not completely determined by current
income. Some consumption is considered to be autonomous (independent of
income).
2. These determinants include:
 Expectations – People who anticipate a pay raise often increase
spending before extra income is received. People who expect to be laid off
tend to save more and spend less.
 Wealth Effects – The amount of wealth (assets) an individual owns will
affect their consumption.
 Definition: Wealth Effects – A change in consumer spending caused
by a change in the value of owned assets.


Credit – Availability of credit allows people to spend more than their
current income. The need to pay past debt may limit current
consumption.
 Taxes – Taxes are the link between total and disposable income. If
income tax rates go up, disposable income will decline and consumers will
not be as able to buy the goods and services produced.
B. Income-Dependent Consumption
1. In recognition of these many determinants of consumption, Keynes distinguished
two kinds of consumer spending.
a. Spending not influenced by current income, and
b. Spending that is determined by current income.
2. Definition: Autonomous Consumption – Consumer spending not
dependent on current income.
3. Formula
Total Consumpion  autonomous consumptio n  income  dependent consumptio n
4. These various determinants of consumption are summarized in the equation

called the consumption function
5. Definition: Consumption Function – A mathematical relationship
indicating the rate of desired consumer spending at various income levels.
6. Formula
C  a  bYD
 where C = current consumption

 a = autonomous consumption
 b = marginal propensity to consume
 YD = disposable income
7. The consumption function provides a precise basis for predicting how changes in
income (YD ) will affect consumer spending(C).
C. One Consumer’s Behavior (Figure 9.4)
1. We expect that even with an income level of zero, there will be some
consumption. This is the autonomous consumption.
2. We also expect consumption to rise with income based on the consumers MPC.
3. Dissaving occurs when current consumption exceeds current income.
4. Definition: Dissaving – Consumption expenditure in excess of disposable
income; a negative saving flow.
5. The 45-degree line.
 The 45-degree line represents all points where consumption and income
are exactly equal.
 The slope of the consumption function equals the marginal propensity to
consume.
D. The Aggregate Consumption Function
1. Figure 9.2 suggests that actual consumer spending lies below the 45-degree line,
indicating that most consumers save something.
2. In the News: “Disposable Income and Outlays: May 2014”
Data for May 2014 shows how income increased by more than consumption did.
This illustrates the MPC<1 concept.
E. Shifts of the Consumption Functions (Figures 9.5 and 9.6)

1. In the function C = a + bYD a change in either of the values of a or b will change
the dimensions of the function.
2. A change in the variable ‘a’ will cause a parallel shift in the function.
 For example, an increase in consumer confidence will increase
autonomous consumption, shifting the consumption function up.
 A decrease in consumer confidence will decrease autonomous
consumption, shifting the consumption function down.
3. A change in “b” alters the slope of the function.
4. In The News: “Consumer Confidence Index at Record Low”
In December 2008, consumer confidence fell to its lowest level ever. Apparently
consumers were worried that job losses, bank failures, and lower housing prices
meant that Aggregate Demand (Figure 9.6)
 Shifts in AD reflect shifts of the consumption function.
 A downward shift of the consumption function implies a reduction (a
leftward shift) in aggregate demand.
 An upward shift of the consumption function implies an increase
(rightward shift) in aggregate demand.
F. Shift Factors (Figure 9.6)
1. Anything that changes the value of autonomous consumption will shift the
consumption function and, in turn, the AD curve. The shift factors include:
 Changes in income
 Changes in consumer expectations (consumer confidence)
 Changes in wealth
 Changes in credit conditions
 Changes in tax policy
2. Shifts and abrupt cycles:
 Increases in consumer spending can cause demand-pull inflation.
 Decreases in consumer spending can cause recession.
3. In The News: “Wealth Effect Boost Spending”
The wealth effect reversed in 2013. Rising home prices and stocks prices greatly
improved the financial situation of U.S. households. They responded with an
upward shift of the consumption function and a rightward shift of the aggregate
demand curve.
V. Investment
A. A number of factors are important in determining the amount of investment which
occurs in an economy.
1. Definition: Investment – Expenditures on (production of) new plant,
equipment, and structures (capital) in a given time period, plus changes in
business inventories.
B. Determinants of Investment
1. Expectations. Business expectations regarding future sales play a critical role
in investment decisions.
2. Interest Rates. Businesses often borrow money to invest in new plants or
equipment. The higher the interest rate, the costlier it is to invest and thus the
lower the investment spending. More investment occurs at lower rates.
3. Technology and innovation. New technology changes the demand for
investment goods.
C. Shifts of Investment (Figure 9.7)
1. Altered expectations:
Investment increases in response to such positive expectations as increased
consumption, technological improvement, or tax decreases.
 Investment decreases in reaction to negative expectations.
2. AD Shifts result from shifts in investment.
3. Volatile Investment Spending (Figure 9.8) Investment spending is volatile
as shown in the historical data for 2000 through 2008.
4. World View: “Panasonic Cuts Spending”
Over the next three years, Panasonic plans to reduce its planned investment in
flat-panels as an input to TV’s production by $1.5 billion.
VI. Government and Net Export Spending

A. Government spending
1. State and local governments are responsible for two-thirds of government
spending. These governmental levels are not allowed to have a deficit.
Consequently, their actions are pro-cyclical. If AD decreases, their revenue
decreases and their spending must decrease.
2. The U.S. government is allowed to have a deficit. Consequently, it can act to
counteract the recession a decrease in AD may cause.
3. In the News: “Cuomo to Cut New York State Spending by $8.9 Billion,
Fire 9,800 Workers”
A recession reduces tax revenues, forcing state and local governments to cut
spending. This deepens the recession.
B. Net exports
1. The level of export sales is not necessarily sensitive to changes to American
income.
C. AD Curve Revisited (Figure 9.9)
1. The AD curve is built by simply adding the four components
 Consumption.
 Investment.
 Government.
 Net Exports (X – M).
VIII. Macro Failure (Figure 9.10)

A. Two possible problems of the market system are:
1. The market’s macro-equilibrium might not give us full employment or price
stability.
2. Even if the market’s macro equilibrium were perfectly positioned, it might not
last.
B. Undesired Equilibrium
1. Macro Success (Figure 9.10a)
 There is both full employment and price stability.
 But there is no reason to expect that market participants, making
independent decisions will generate exactly this aggregate demand.
2. Recessionary GDP Gap (Figure 9.10b and 9.11)
 Definition: Full-employment GDP – The value of total output (real
GDP) produced at full employment.
 Definition: Equilibrium GDP - The value of total output (real GDP)
produced at macro equilibrium (AS = AD).
 Definition: Recessionary GDP gap – The amount by which
equilibrium GDP falls short of full-employment GDP.

If the spending plans of consumers, investors, government, and export
buyers don’t generate enough aggregate demand at current prices, then
there will be a recessionary gap, a breeding ground for cyclical
unemployment.
 Definition: Cyclical Unemployment – Unemployment attributable
to a lack of job vacancies that is, to inadequate aggregate demand.
3. Inflationary GDP Gap (Figure 9.10c)
 If market participants demand more output at current prices than the
economy can produce then there will be an inflationary GDP gap, a
breeding ground for demand-pull inflation.
Definitions: Inflationary GDP Gap - The amount by which
equilibrium GDP exceeds full-employment GDP
Demand-pull Inflation – An increase in the price level initiated by
excessive aggregate demand.
C. Unstable Equilibrium
1. Even if market participants generate the perfect amount of aggregate demand,
changes in spending behavior, often abrupt, can push the AD curve out of its
‘perfect’ position.
2. The result will be undesirable outcomes. (Figure 9.10)
3. Recurrent shifts can cause a business cycle.
4. Definition: Business cycle – Alternating periods of economic growth and
contraction.
D. Macro Failures
If aggregate demand is too little, too great, or too unstable, the economy will not reach
and maintain its goals.
E. Self-Adjustment?
1. If markets self-adjust, as classical economists asserted, then macro failures would
be temporary.
2. Keynes didn’t think it likely that offsetting shifts would occur.
IX. The Economy Tomorrow: Anticipating AD Shifts

A. Policymakers need a way to peer into the future. One of the most widely used crystal
balls is the Leading Economic Index.
B. The Leading Economic Indicators (Table 9.2)
There are ten factors believed to predict economic activity. They are reported each
month by the Conference Board.
C. Although they have a good track record, the Indicators aren’t perfect due to unexpected
changes in demand.
D. In the News: “U. S. Leading Indicators Signal Continuing Recovery”
Market participants try to predict the economic outlook with measurable indicators like
new orders and building permits.
X. Appendix: The Keynesian Cross

A. Focus on AE (Figure 9A.1)
1. Definition: Aggregate Expenditure – The rate of total expenditure desired
at alternative levels of income, ceteris paribus.
2. Keynes focused on the relationship between income and spending (rather than
price levels.)
3. The graph plots income/output on the horizontal axis and spending on the
vertical axis. The 45° angle represents all income is spent and, therefore, all
output produced is purchased.
B. Consumption Shortfall (Figure 9A.1)
1. Consumption Shortfall is the difference between the 45° reference line and
consumption spending at the full employment level
2. Consumption spending alone does not buy all the output.
C. Non-consumer Spending (Figure 9A.2)
1. Investment, Government Spending, and Net Exports provide the additional
spending.
2. Notice that each of these are autonomous, meaning they do not change as
consumer income changes.
3. These are added to the Consumption function to create the Aggregate
Expenditure (AE) curve.
D. Recessionary Gap (Figure 9A.3)
1. Definition: Recessionary Gap – The amount by which aggregate spending
at full-employment falls short of full-employment output.
2. When an economy is experiencing a recessionary gap, not enough output is
willingly purchased at full employment to sustain the economy.
3. In such a case producers may react to the spending short-fall by cutting back on
production and laying off workers.
E. A Single Equilibrium (Figure 9A.3)
1. Definition: Expenditure equilibrium - The rate of output at which desired
spending equals the value of output.
2. Equilibrium is the point where the total spending equals the value of output;
everything which is produced is also sold.
3. At macro equilibrium producers have no incentive to change the rate of output
because they’re selling everything they produce.
F. Macro Failure (Figure 9A.3)
1. Macro failure occurs when equilibrium occurs at a lower rate of output than the
economy’s full employment potential resulting in unemployment.
2. The economy sometimes exceeds the economy’s full-employment potential. In
such a case, an inflationary gap would exist.
3. Definition: Inflationary Gap – The amount by which aggregate spending at
full-employment exceeds full-employment output.
G. Two Paths to the Same Conclusion
1. The Keynesian analysis of aggregate expenditures is similar to the Keynesian
analysis of aggregate demand. The difference is it focuses on total spending and
output.
2. In the newer AD analysis, the separate effects of macro instability on prices and
real output are distinguished.
3. Because changes in both the price level and changes in real GDP are important,
the AD/AS framework is more useful.

IN-CLASS DEBATE, EXTENDING THE DEBATE, AND
DEBATE PROJECT
In-Class Debate
Aggregate demand or aggregate supply?
Think of a recent U.S. fiscal policy change or monetary policy change. Describe it in one
sentence:
Will this policy change have an impact primarily on aggregate demand or aggregate supply—or
will it have a nearly equal effect on both? Explain.
Use the aggregate demand/aggregate supply curve analysis to describe the impact on output and
prices of your policy change. (Make certain that your curves shift correctly to the right or to the
left.)
As instructed, compare your results with the analysis by another student.
Teaching note
Ask student pairs to work together after completing the steps above. Students might pair to
check answers. Or, students might be asked to find someone who chose to analyze a different
fiscal or monetary policy. These pairs of students could then compare policies and choose one as
the best for the current economy.
Extending the Debate

Is inflation caused by changes in aggregate demand or aggregate supply?
Inflation is sometimes identified as being demand-pull and sometimes as cost-push indicating

the source of the inflationary pressures. Demand-pull inflation describes an increase in the
average price level initiated by excessive aggregate demand. Cost-push describes an increase in
the average price level initiated by excessive increases in the costs of production.
Look at the data for inflation, the growth rate of real GDP, the unemployment rate (all available
at http://research.stlouisfed.org/fred2/) and the employment cost index
(http://www.bls.gov/web/eci.supp.toc.htm for the periods 1979-1982, 1995-1999, and for the
last 4 years. Be sure that you understand the definition of each variable you use. Analyze for
these three periods and graphically show what you think is happening in the macroeconomy.
A comparison with the Canadian experience can be done by looking at comparable Canadian
data from http://www.ic.gc.ca/eic/site/cis-sic.nsf/eng/home. At this data site, you can also use
cost of production which is more general than simply the employment cost index.
Is the inflation of the last four years demand-pull or cost push?

Teaching Notes
Divide the class in half. Have the first group look at the U.S. data and reach a conclusion.
Have the second group look at the Canadian data and reach a conclusion. Us the student
answers to discuss the different sources of inflation and the different impact on the
economy of the inflation.
Debate project
Have stabilization policies reduced the severity of business cycles?
Macroeconomics grew out of the attempts to explain the recurrent fluctuations in economic
activity; that is business cycle theories. The length of adjustment time and the economic impact
of that adjustment is the subject of much debate among economists. Economists have proposed
many policies to reduce the fluctuations in real gross domestic product due to the business cycle.
Key questions
 What is the business cycle?

 How many recessions have there been since 1949?
 Which recession was the most severe? Least severe?
 What has been the longest time between recessions?
 Have the severity of recessions decreased over the post-war period?
The Business Cycle Dating Committee of the National Bureau of Economic Research is the
group that defines when the U.S. economy is in a recession or expansion period. The primary
determinant of economic activity is real GDP. The committee uses the following definitions: "A
recession is a significant decline in economic activity spread across the economy, lasting more
than a few months, normally visible in real GDP, real income, employment, industrial
production, and wholesale-retail sales. A recession begins just after the economy reaches a peak
of activity and ends as the economy reaches its trough. Between trough and peak, the economy
is in an expansion. Expansion is the normal state of the economy; most recessions are brief and
they have been rare in recent decades."
To investigate the answers to the questions, go to the National Bureau of Economic Research
(NBER) website to identify when business cycles occurred during the post-World War II
period. The website is: www.nber.org/cycles.html.
The relationship between the real gross domestic product and the potential GDP is a good
measure of the performance of the economy relative to the potential. Go to the St. Louis
Federal Reserve web site and use the data on real GDP and potential GDP to answer the
questions about the severity of recessions.
Potential GDP estimates: http://research.stlouisfed.org/fred2/series/GDPPOT
Real GDP http://research.stlouisfed.org/fred2/series/GDPC1/
Measures of severity might be the ratio of actual to potential real GDP, how much GDP fell,
how long it fell, and how quickly it fell.
If you wanted to look at various business cycle theories, you can go to the following website:
http://www.newschool.edu/nssr/het/schools/business.htm

PRINT MEDIA EXERCISE Name:
Chapter 9 Section:
Aggregate Demand and Expenditure Grade:
Find an article that describes an event that would cause such a shift in Aggregate Expenditure.
Use the article to fulfill the following instructions and questions:
1. Mount a copy (do not cut up newspapers or magazines) of the article on a letter-sized page.
Make sure there is room at the bottom of the article to write the answers to the questions.
2. Below the article write "shifts upward" if the event you have chosen causes an upward shift
in the aggregate expenditure curve. Write "shifts downward" if the event causes a downward
shift of the aggregate expenditure curve.
3. Circle the statement that shows that real income of the economy or the economic growth has
responded in a way that is consistent with the shift that you have chosen.
4. In the remaining space below your article, indicate the source (name of newspaper or
magazine), title (newspaper headline or magazine article title), date, and page for the article
you have chosen. Use this format:
Source: _____________________ Date: _______________ Page: ____________
Headline: ________________________________________________________
If this information also appears in the article itself, circle each item.
5. Neatness counts.

Professor's Note
Learning Objective for Media Exercise
To give students practice in shifting aggregate expenditure curves, and to recognize the concept
of shifting aggregate spending in the media.
Suggestions for Correcting Media Exercise
1. Check for consistency between the shifts written below the article. 2.
3. This exercise can be used to provide grades to the students orally in class. After you have
collected papers, ask students to describe the change that they found, and how the aggregate
spending curve shifts. Grades can reflect:
a. Ability to recall the article (some students may not have done their own article).
b. Critical thinking skills.
c. Ability to communicate with a succinct, well-thought-out response. Small classes (thirty
or fewer students) are best for this approach
Likely Student Mistakes and Lecture Opportunities
1. Students invariably come up with micro examples to illustrate aggregate expenditure

changes.
3. Students are inclined to underline too much and to include more than one event causing
shifts in aggregate expenditure. This is an opportunity to emphasize that ceteris paribus
applies to aggregate expenditure curves, not just demand and supply; it's just that something
different is being held constant (namely, prices).
4. Quite likely there will be some examples of secondary, multiplying effects. Although
multiplying effects have not been covered in this chapter, the next chapter will cover them.
You can tell who is ahead in the reading by seeing if anyone can identify these secondary
effects with the "multiplier."
SUPPLEMENTARY RESOURCES
Patinkin, Don: "Keynes, John Maynard" in Eatwell, et al. (eds.), The New Palgrave, Macmillan
Press, London, 1987, pp. 19-39. A tour-de-force which is simultaneously a readable
(though tough for students) comprehensive survey with an extensive bibliography.
"Symposium: Keynesian Economics Today,” The Journal of Economic Perspectives, Winter
1993, pp. 3-82. This provides a readable up-to-date overview of Keynesian theory.

Another random document with
no related content on Scribd:
tener entendido lo mal que le
succedia, siendo de otra manera:
y a mí Dios sabe si me costaba
lagrimas, porque fueron tantas las
que yo delante de Çelia derramé,
suplicandole no tratasse mal a
quien tanto le queria, que bastara
esto para que don Felis me
tuuiera la maior obligaçion, que
nunca hombre tuuo a muger. A
Çelia le llegauan al alma mis
lagrimas, assi porque yo las
derramaua, como por parescelle
que si yo la quisiera lo que a su
amor deuia, no sollicitara con
tanta diligençia fauores para otro:
y assi lo dezia ella muchas ueces
con una ansia, que parescia que
el alma se le queria despedir. Yo
biuia en la mayor confusion del
mundo porque tenía entendido
que sino mostraua quererla como
a mí me ponia a riesgo que Çelia
boluiesse a los amores de don
Felis; y que boluiendo a ellos, los
mios no podrian auer buen fin: y
si tambien fingia estar perdida por
ella, sería causa que ella
desfauoresciesse al mi don Felis,
de manera que a fuerça de
disfauores perdiesse el
contentamiento, y tras él la uida.
Y por estoruar la menor cosa
destas, diera yo cien mil de las
mias, si tantas tuuiera. Deste
modo se passaron muchos dias,
que le seruia de tercera, a
grandissima costa de mi
contentamiento, al cabo de los
quales los amores de los dos
yuan de mal en peor, porque era
tanto lo que Çelia me queria, que
la gran fuerça de amor la hizo que
perdiesse algo de aquello que
deuia a sí misma. Y un dia
despues de auer lleuado y traydo
muchos recaudos, y de auerle yo
fingido algunos, por no uer triste a
quien tanto queria, estando
supplicando a la señora Çelia con
todo el acatamiento possible, que
se doliesse de tan triste uida,
como don Felis a causa suya
passaua, y que mirasse que en
fauorescelle, yua contra lo que a
si misma deuia, lo qual yo hazia
por uerle tal que no se esperaua
otra cosa sino la muerte, del gran
mal que su pensamiento le hazia
sentir. Ella con lagrimas en los
ojos, y con muchos sospiros me
respondio: Desdichada de mí, o
Valerio, que en fin acabo de
entender quan engañada biuo
contigo. No creya yo hasta agora,
que me pedias fauores para tu
señor, sino por gozar de mi uista
el tiempo que gastauas en
pedirmelos. Mas ya conozco, que
los pides de ueras, y que pues
gustas de que yo agora le trate
bien, sin duda no deues
quererme. O quán mal me pagas,
lo que yo te quiero, y lo que por ti
dexo de querer. Plega a Dios, que
el tiempo me uengue de ti, pues
el amor no ha sido parte para ello.
Que no puedo yo creer que la
fortuna me sea tan contraria, que
no te dé el pago de no auella
conoçido. E di a tu señor don
Felis, que si biua me quiere uer,
que no me uea, y tú, traydor
enemigo de mi descanso, no
parezcas más delante destos
cansados ojos: pues sus lagrimas
no han sido parte para darte a
entender lo mucho que me deues.
Y con esto se me quitó delante
con tantas lagrimas, que las mias
no fueron parte para detenella:
porque con grandissima priessa
se metio en un aposento, y
cerrando tras si la puerta, ni bastó
llamar, suplicandole con mis
amorosas palabras, que me
abriesse, y tomasse de mí la
satisfaçion que fuesse seruida, ni
dezille otras muchas cosas, en
que se mostraua la poca razon
que auia tenido de enojarse, para
que quisiesse abrirme. Mas antes
desde allá dentro me dixo (con
una furia estraña): ingrato y
desagradecido Valerio, el más
que mis ojos pensaron uer, no me
ueas, no me hables: que no hay
satisfaçion para tan grande
desamor, ni quiero otro remedio
para el mal que me heziste, sino
la muerte, la qual yo con mis
proprias manos tomaré, en
satisfaçion de la que tú mereçes.
Y yo uiendo esto, me uine a casa
del mi don Felis, con más tristeza
de la que pude dissimular: y le
dixe, que no auia podido hablar a
Çelia, por çierta uisita en que
estaua occupada. Mas otro dia de
mañana supimos, y aun se supo
en toda la çiudad, que aquella
noche le auia tomado un
desmayo con que auia dado el
alma, que no poco espanto puso
en toda la corte. Pues lo que don
Felis sintio su muerte y quanto
llegó al alma, no se puede dezir,
ni ay entendimiento humano que
alcançallo pueda: porque las
cosas que dezia, las lastimas, las
lagrimas, los ardientes sospiros
eran sinumero. Pues de mí no
digo nada, porque de una parte la
desastrada muerte de Çelia me
llegaua al alma, y de otra las
lachrimas de don Felis me
traspassauan el coraçon. Aunque
esto no fue nada, segun lo que
despues senti, porque como don
Felis supo su muerte, la misma
noche desparesció de casa, sin
que criado suyo ni otra persona
supiesse dél. Ya ueys, hermosas
Nimphas, lo que yo sentiria:
pluguiera a Dios que yo fuera la
muerta, y no me sucediera tan
gran desdicha, que cansada
deuia estar la fortuna de las de
hasta alli. Pues como no bastasse
la diligençia que en saber del mi
don Felis se puso (que no fue
pequeña), yo determiné ponerme
en este habito en que me ueys:
en el qual ha mas de dos años,
que he andado buscandole por
muchas partes, y mi fortuna me
ha estoruado hallarle, aunque no
le deuo poco, pues me ha traydo
a tiempo, que este pequeño
seruicio pudiesse hazeros. Y
creedme (hermosas Nimphas)
que lo tengo (despues de la vida
de aquel en quien puse toda mi
esperança) por el mayor contento
que en ella pudiera reçebir.
Quando las Nimphas acabaron de
oyr a la hermosa Felismena, y
entendieron que era muger tan
principal, y que el amor le auia
hecho dexar su habito natural, y
tomar el de pastora, quedaron tan
espantadas de su firmeza, como
del gran poder de aquel tirano,
que tan absolutamente se haze
seruir de tantas libertades. E no
pequeña lastima tuuieron de uer
las lagrimas y los ardientes
sospiros con que la hermosa
donzella solenizaua la historia de
sus amores. Pues Dorida, a quien
más auia llegado al alma el mal
de Felismena, y más affiçionada
le estaua que a persona a quien
toda su uida uuiesse conuersado,
tomó la mano de respondelle, y
començó a hablar desta manera:
¿Qué haremos, hermosa señora,
a los golpes de la fortuna qué
casa fuerte aurá adonde la
persona pueda estar segura de
las mudanças del tiempo? ¿Qué
arnes ay tan fuerte, y de tan fino
açero, que pueda a nadie
defender de las fuerças deste
tirano, que tan injustamente
llaman amor? ¿Y qué coraçon ay,
aunque más duro sea que
marmol, que un pensamiento
enamorado no le ablande? No es
por çierto essa hermosura, no es
esse ualor, no es essa discreçion,
para que merezca ser oluidada de
quien una uez pueda uerla: pero
estamos a tiempo[1246], que
merescer la cosa es principal
parte para no alcançalla. Y es el
crudo amor de condiçion tan
estraña, que reparte sus
contentamientos sin orden ni
conçierto alguno: y alli da
mayores cosas donde en menos
son estimadas: medecina podria
ser para tantos males, como son
los de que este tirano es causa, la
discreçion y ualor de la persona
que los padesce. Pero ¿a quién la
dexa tan libre, que le pueda
aprouechar para remedio? ¿o
quién podra tanto consigo en
semejante passion, que en
causas agenas sepa dar consejo,
quanto más tomalle en las suyas
proprias? Mas con todo eso,
hermosa señora, te suplico
pongas delante los ojos quién
eres, que si las personas de tanta
suerte y valor como tú no
bastaren a suffrir sus
aduersidades, ¿cómo las podrian
suffrir las que no lo son? Y demas
desto, de parte destas Nimphas, y
de la mia, te suplico en nuestra
compañia, te uayas, en casa de la
gran sabia Feliçia, que no es tan
lexos de aquí, que mañana a
estas horas no estemos alli[1247].
Adonde tengo por aueriguado,
que hallarás grandissimo remedio
para estas angustias como lo han
hallado muchas personas, que no
lo merescian. De mas su sciencia,
a la qual persona humana en
nuestros tiempos no se halla que
pueda ygualar su condiçion, y su
bondad no menos la
engrandesce, y haze que todas
las del mundo, desseen su
compañia. Felismena respondio:
No sé (hermosas Nimphas) quién
a tan graue mal puede dar
remedio, si no fuesse el proprio
que lo causa. Mas con todo esso
no dexare de hazer uuestro
mandado, que pues uuestra
compañia es para mi pena tan
gran aliuio, injusta cosa sería
desechar el consuelo en tiempo
que tanto lo he menester. No me
espanto yo, dixo Çinthia, sino
cómo don Felis, en el tiempo que
le seruias, no te conoció en esse
hermoso rostro, y en la gracia, y
el mirar de tan hermosos ojos.
Felismena entonces respondio:
tan apartada tenia la memoria de
lo que en mí auia uisto, y tan
puesto en lo que ueya en su
señora Çelia, que no auia lugar
para esse conoscimiento. Y
estando en esto, oyeron cantar
los pastores que en compañia de
la discreta Seluagia yuan por una
cuesta abaxo los mas antiguos
cantares que cada uno sabia, o
que su mal le inspiraua, y cada
qual buscaua el uillancico que
más hazia a su proposito, y el
primero que començo a cantar fue
Syluano, el qual cantó lo
siguiente:
Desdeñado soy de amor,

guardeos Dios de tal dolor.
Soy del amor desdeñado
de fortuna perseguido;
ni temo uerme perdido,
ni aun espero ser ganado:
un cuydado a otro cuydado
me añade siempre el amor,
En quexas me entretenia,
ued qué triste passatiempo:
ymaginaua que un tiempo,
tras otros tiempos uenia:
mas la desuentura mia
mudóle en otro peor,
Seluagia que no tenia menos

amor, o menos presumpçion de
tenelle al su Alanio, que Syluano
a la hermosa Diana, tan poco se
tenia por menos agrauiada, por la
mudança que en sus amores auia
hecho, que Syluano en auer tanto
perseuerado en su daño;
mudando el primero verso, a este
villançico pastoril, antiguo, lo
començó a cantar aplicandolo a
su proposito desta manera:
Di, ¿quién te ha hecho

pastora
sin gasajo y sin plazer,
que tú alegre solias ser?
Memoria del bien passado
en medio del mal presente,
ay del alma que lo siente,
si está mucho en tal estado:
despues que el tiempo ha
mudado
a vn pastor por me ofender,
jamás he visto el plazer.
A Sireno bastara la cançion de

Seluagia, para dar a entender su
mal, si ella y Syluano, se lo
consintieran: mas persuadiendole
que él tambien eligiesse alguno
de los cantares que más a su
proposito huuiese oydo, començo
a cantar lo siguiente:
Oluidastesme señora,
mucho mas os quiero agora.
Sin ventura yo oluidado
me veo, no sé por qué,
ved a quien distes la fe,
y de quien la aueys quitado,
El no os ama, siendo amado,
yo desamado, señora,
mucho más os quiero agora.
Paresceme que estoy
uiendo
los ojos en que me ui,
y uos por no uerme assi,
el rostro estays escondiendo,
y que yo os estoy diziendo:
alça los ojos, señora,
que muy mas os quiero agora.
Las Nimphas estuuieron muy

atentas a las cançiones de los
pastores, y con gran
contentamiento de oyllos: mas a
la hermosa pastora no le dexaron
los sospiros estar oçiosa en
quanto los pastores cantauan.
Llegado que fueron a la fuente, y
hecho su deuido acatamiento,
pusieron sobre la yerua la mesa,
y lo que del aldea auian traydo, y
se assentaron luego a comer,
aquellos a quien sus
pensamientos les dauan lugar, y
los que no, importunados de los
que más libres se sentian, lo
uuieron de hazer. E despues de
auer comido, Polidora dixo ansi:
Desamados pastores (si es licito
llamaros el nombre que a uuestro
pesar la fortuna os ha puesto) el
remedio de uuestro mal está en
manos de la discreta Feliçia, a la
qual dio naturaleza lo que a
nosotras ha negado. E pues ueys
lo que os importa yr a uisitarla,
pidoos de parte destas Nimphas,
a quien este dia tanto seruiçio
aueys hecho, que no rehuseys
nuestra compañia, pues no de
otra manera podeis reçebir el
premio de uuestro trabajo: que lo
mismo hará esta pastora, la qual
no menos que uosotros lo ha
menester. E tú, Sireno, que de un
tiempo tan dichoso, a otro tan
desdichado te ha traydo la
fortuna, no te desconsueles: que
si tu dama tuuiese tan çerca el
remedio de la mala uida que
tiene, como tú de lo que ella te
haze passar, no seria pequeño
aliuio para los desgustos y
desabrimientos que yo sé que
passan cada dia. Sireno
respondió: Hermosa Polidora,
ninguna cosa da la hora de agora
mayor descontento, que auerse
Diana uengado de mí, tan a costa
suya, porque amar ella a quien no
le tiene en lo que meresce, y
estar por fuerça en su compañia,
ueys lo que le deue costar; y
buscar yo remedio a mi mal,
hazerlo ía, si el tiempo, o la
fortuna, me lo permetiessen, mas
ueo que todos los caminos son
tomados y no sé por donde tú y
estas Nimphas pensays lleuarme
a buscarle[1248]. Pero sea como
fuere nosotros os seguiremos, y
creo que Syluano y Seluegia
harán lo mismo, si no son de tan
mal conoscimiento, que no
entiendan la merçed que a ellos y
a mí se nos haze. Y remitiendose
los pastores a lo que Sireno auia
respondido, y encomendando sus
ganados a otros, que no muy
lexos estauan de alli, hasta la
buelta, se fueron todos juntos por
donde las tres Nimphas los
guyauan.
Fin del segundo libro.

NOTAS:
[1235] M., pradecillo.
[1236] Falta el un en la edición de Milán.
[1237] M., acaballo.
[1238] Dellos añade la edición de Milán.
[1239] M., Hermana Cinthia.
[1240] M., quiso hablar, mas no habló.
[1241] M., apuntándole.
[1242] M. Deesas.
[1243] M., fui.
[1244] M., volvieron.
[1245] M., la avisan.
[1246] M., en tiempo.
[1247] M., allá.
LIBRO TERÇERO
DE LA DIANA DE
GEORGE DE
MONTEMAYOR
Con muy gran contentamiento

caminauan las hermosas
Nimphas con su compañia por
medio de un espesso bosque, y
ya que el sol se queria poner,
salieron a un muy hermoso ualle,
por medio del qual yua un
impetuoso arroyo, de una parte y
otra adornado de muy espessos
salces y alisos, entre los quales
auia otros muchos generos de
arboles más pequeños, que
enredandose a los mayores,
entretexendose las doradas flores
de los unos por entre las uerdes
ramas de los otros, dauan con su
uista gran contentamiento. Las
Nimphas y pastores tomaron una
senda que por entre el arroyo y la
hermosa arboleda se hazia, y no
anduuieron mucho espaçio,
quando llegaron a un uerde prado
muy espaçioso, a donde estaua
un muy hermoso estanque de
agua: del qual proçedia el arroyo
que por el ualle con gran[1249]
impetu corria. En medio del
estanque estaua una pequeña
isleta adonde auia algunos
arboles por entre los quales se
deuisaua una choça de pastores:
alrededor della andaua un rebaño
de ouejas, pasciendo la uerde
yerua. Pues como a las Nimphas
paresciesse aquel lugar
aparejado para passar la noche
que ya muy cerca venía, por unas
piedras que del prado a la isleta
estauan por medio del estanque
puestas en orden, passaron
todas, y se fueron derechas a la
choça, que en la isleta parescia. Y
como Polidora, entrando primero
dentro, se adelantasse un poco,
aun no huuo entrado, quando con
gran priessa boluio a salir, y
boluiendo el rostro a su
compañia, puso un dedo ençima
de su hermosa boca, haziendoles
señas que entrassen sin ruido.
Como aquello uiessen las
Nimphas y los pastores, con el
menes rumor que pudieron
entraron en la choça: y mirando a
una parte y a otra, uieron a un
rincon un lecho, no de otra cosa
sino de los ramos de aquellos
salces, que en torno de la choça
estauan, y de la uerde yerua, que
junto al estanque se criaua.
Ençima de la qual uieron una
pastora durmiendo, cuya
hermosura no menos admiraçion
les puso, que si la hermosa Diana
uieran delante de sus ojos. Tenia
una saya azul clara, un jubon de
una tela tan delicada, que
mostraua la perfeçion y compas
del blanco pecho, porque el
sayuelo que del mesmo color de
la saya era, le tenia suelto, de
manera que aquel graçioso buelto
se podia bien diuisar. Tenía los
cabellos, que más ruuios que el
sol parescian sueltos y sin orden
alguna. Mas nunca orden tanto
adornó hermosura, como la
desorden que ellos tenian, y con
el descuydo del sueño, el blanco
pie descalço, fuera de la saya se
le parescia, mas no tanto que a
los ojos de los que lo mirauan
paresciesse deshonesto. Y segun
parescia por muchas lagrimas,
que aun durmiendo por sus
hermosas mexillas derramaua, no
le deuia el sueño impedir sus
tristes imaginaciones. Las
Nimphas y pastores estauan tan
admirados de su hermosura y de
la tristeza que en ella conoscian,
que no sabian qué se dezir, si no
derramar lagrimas de piedad de
las que á la hermosa pastora
ueyan derramar. La qual estando
ellos mirando, se boluio hazia un
lado, diziendo con un sospiro que
del alma la salia: ¡ay desdichada
de ti, Belisa, que no está tu mal
en otra cosa, sino en ualer tan
poco tu uida, que con ella no
puedes pagar las que por causa
tuya son perdidas! Y luego con
tan grande sobresalto despertó,
que paresció tener el fin de sus
dias presente, mas como uiesse
las tres Nimphas, y las hermosas
dos pastoras, juntamente con los
dos pastores, quedó tan
espantada, que estuuo un rato sin
bolver en sí, boluiendo a mirallos,
sin dexar de derramar muchas
lagrimas, ni poner silençio a los
ardientes sospiros que del
lastimado coraçon embiaua,
començo a hablar desta manera.
Muy gran consuelo sería para tan
desconsolado coraçon como este
mio, estar segura de que nadie
con palabras, ni con obras
pretendiesse darmele, porque la
gran razon, ¡o hermosas
Nimphas! que tengo de biuir tan
embuelta en tristezas, como biuo,
ha puesto enemistad entre mí y el
consuelo de mi mal. De manera
que si pensasse en algun tiempo
tenelle, yo misma me daria la
muerte. Y no os espanteys
preuenirme yo deste remedio,
pues no ay otro para que me dexe
de agrauiar del sobresalto que
reçebi en ueros en esta choça
(lugar aparejado no para otra
cosa, sino para llorar males sin
remedio), y esto sea auiso, para
que qualquiera que a su tormento
le esperare, se salga dél: porque
infortunios de amor le tienen
cerrado, de manera que jamás
dexan entrar aqui alguna
esperança de consuelo.
Mas ¿qué uentura ha guiado tan
hermosa compañia do jamás se
uio cosa que diese contento?
¿Quién pensays que haze cresçer
la uerde yerua desta isla, y
acresçentar las aguas que la
çercan, si no mis lagrimas?
¿Quién pensays que menea los
arboles deste hermoso ualle, sino
la boz de mis sospiros tristes, que
inchando el ayre, hazen aquello
que él por sí no haria? ¿Porqué
pensays que cantan los dulçes
paxaros por entre las matas,
quando el dorado Phebo está en
toda su fuerça, sino para ayudar a
llorar mis desuenturas? ¿A qué
pensays que las temerosas fieras
salen al uerde prado, sino a oyr
mis continuas quexas? ¡Ay
hermosas Nimphas! no quiera
Dios que os aya traydo a este
lugar uuestra fortuna para lo que
yo uine a él, porque çierto
paresce (segun lo que en él
passó), no auelle hecho
naturaleza para otra cosa, sino
para que en él passen su triste
uida los incurables de amor. Por
esso si alguna de uosotras lo es,
no passe más adelante: y vayase
presto de aqui: que no sería
mucho que la naturaleza del lugar
le hiciesse fuerça. Con tantas
lagrimas dezia esto la hermosa
pastora, que no auia ninguno de
los que alli estauan, que las suyas
detener pudiesse. Todos estauan
espantados de uer el spiritu que
con el rostro y mouimientos daua
a lo que dezia, que çierto bien
pareçian sus palabras salidas del
alma: y no se suffria menos que
esto, porque el triste successo de
sus amores, quitaua la sospecha
de ser fingido lo que mostraua. Y
la hermosa Dorida le habló desta
manera: Hermosa pastora, ¿qué
causa ha sido la que tu gran
hermosura ha puesto en tal
estremo? ¿Qué mal tan estraño te
pudo hazer amor, que aya sido
parte para tantas lagrimas
acompañadas de tan triste y tan
sola uida, como en este lugar
deues hazer? Mas ¿qué pregunto
yo? Pues en uerte quexosa de
amor, me dizes más de lo que yo
preguntarte puedo. Quesiste
assegurar quando aqui entramos,
de que nadie te consolasse: no te
pongo culpa, officio es de
personas tristes, no solamente
aborrecer al consuelo, mas aun a
quien piensa que por alguna uia
pueda darsele. Dezir que yo
podria darle a tu mal, ¿que
aprouecha si él mismo no te da
liçençia que me creas? Dezir que
te aproueches de tu juyzio y
discreçion bien sé que no le
tienes tan libre, que puedas
hazello. Pues ¿qué podría yo
hazer para darte algun aliuio, si tu
determinaçion me ha de salir al
encuentro? De una cosa puedes
estar çertificada, y es que no
auria remedio en la uida, para que
la tuya no fuesse tan triste, que yo
dexase de dartele, si en mi mano
fuesse. Y si esta uoluntad alguna
cosa meresçe, yo te pido de parte
de los que presentes están, y de
la mia, la causa de tu mal nos
cuentes, porque algunos de los
que en mi compañia uienen,
estan con tan gran neçessidad de
remedio, y os tiene amor en tanto
estrecho, que si la fortuna no los
socorre, no sé que sera de sus
uidas. La pastora que de esta
manera uio hablar a Dorida,
saliendose de la choça, y
tomandola por la mano la lleuó
cerca de una fuente que en un
uerde pradezillo estaua, no muy
apartado de alli, y las Nimphas y
los pastores se fueron tras ellas, y
juntos se assentaron en torno a la
fuente, auiendo el dorado Phebo

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WHAT IS THIS CHAPTER ALL ABOUT?

NEW TO THIS EDITION

Chapter 9 – Aggregate Demand

2. Another idea is to talk about students’ consumption patterns.

5. You could also discuss the computer industry.

COMMON STUDENT ERRORS

2. When a person invests in stocks, investment expenditures increase. Investment

4. The marginal propensity to consume is consumption divided by income. There is a big

Chapter 9 – Aggregate Demand

C. Consumption vs. Saving

6. In the News: “Overspending”

E. Marginal Propensity to Save (MPS)

IV. The Consumption Function

Chapter 9 – Aggregate Demand

Total Consumpion  autonomous consumptio n  income  dependent consumptio n

4. These various determinants of consumption are summarized in the equation

 where C = current consumption

Chapter 9 – Aggregate Demand

VI. Government and Net Export Spending

VIII. Macro Failure (Figure 9.10)

IX. The Economy Tomorrow: Anticipating AD Shifts

X. Appendix: The Keynesian Cross

Chapter 9 – Aggregate Demand

As instructed, compare your results with the analysis by another student.

Extending the Debate

Inflation is sometimes identified as being demand-pull and sometimes as cost-push indicating

Is the inflation of the last four years demand-pull or cost push?

Chapter 9 – Aggregate Demand

 What is the business cycle?

Potential GDP estimates: http://research.stlouisfed.org/fred2/series/GDPPOT

Real GDP http://research.stlouisfed.org/fred2/series/GDPC1/

Chapter 9 – Aggregate Demand

Chapter 9 – Aggregate Demand

Suggestions for Correcting Media Exercise

Likely Student Mistakes and Lecture Opportunities

1. Students invariably come up with micro examples to illustrate aggregate expenditure

Chapter 9 – Aggregate Demand

Desdeñado soy de amor,

Seluagia que no tenia menos

Di, ¿quién te ha hecho

A Sireno bastara la cançion de

Las Nimphas estuuieron muy

Fin del segundo libro.

Con muy gran contentamiento

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