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Week 5 · Module overview

Week 5 — Aggregate Demand & Aggregate Supply

Principles of Macroeconomics Free sample edition

Welcome to your Week 5 Start Here page.

Why this matters

A delivery driver whose hours get cut when gas prices jump and a café owner watching customers spend less are both living through the same model.

In plain language

Prices and output often rise and fall together, and this week you get the picture that explains why. The picture is the AD–AS model (a graph of the whole economy, with total output across the bottom and the overall level of prices up the side). One curve, aggregate demand (how much everyone in the economy wants to buy at each overall price level), slopes down. Another, short-run aggregate supply (how much all firms want to produce at each overall price level for now), slopes up. Where they cross tells you the economy's price level and output, and most of the week builds one habit: name which curve a news event moves and which way, then read where prices and output land.

  • Already covered: real GDP, the price level as an index, and potential output.
  • This week: the AD–AS model and how to read a shift.
  • How they connect: real GDP and the deflator become the axes.
  • Where we're going next: Week 6, Business Cycles & Short-Run Fluctuations.

Focus

Why do prices and output so often move together, and when do they move apart?

By the end of this module, you should be able to:

  • [ ] explain why aggregate demand slopes down
  • [ ] solve a linear AD–AS pair for P and Y
  • [ ] tell a movement along a curve from a shift
  • [ ] name the curve, direction, and new P and Y

To-do

Plan your week

  1. Read Chapter 5 (about 40 minutes), then the lecture and slides.
  2. Work the lecture tutorial (60–90 minutes) and the practice set (about 20 minutes).
  3. Do the Model Workshop (about 90 minutes), the discussion, and the assignment.
  4. Take the quiz.

This week's checkpoint: given a shift, name the curve and direction and say what happens to the price level and real output.

You've got this

Take it in order, and ask your instructor if a step snags.

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