Objective:
Students will apply and analyze macroeconomic theories and models using a national or global event. This event may be current, historical, political, or social. Students must find and research at least five academic articles to conduct their analysis. Students will use articles to write a paper making and defending a claim or argument regarding the event. This is NOT a paper about what happened, but about why it happened, how it happened, or what will happen as a result.
Part I. Introduction
Students should present their thesis in the introduction. Students should state the event and its significance (why research this topic?), and the macroeconomic theories and or models used to analyze and posit the student’s perspective.
Part II. Research
Students must use macroeconomic language and provable microeconomic statements. Students must use data from appropriate and relevant websites to validate the thesis. Students must include some visual element (chart, graph, etc.) to present evidence and support thesis.
Part III. Conclusion
How did the macroeconomic analysis and research change your perspective? What did you learn from your research?
Part IV.
Bibliography and Work Cited pages
Overview
The AD-AS model has come to be accepted as the normative textbook model for macroeconomic analysis. Given that aggregate demand and supply are at equilibrium, this model displays the price level and level of real output. The downward slope of the aggregate demand curve indicates that more output is required at lower price levels.
Three factors contribute to the downward slope: the Pigou or real balance effect, which states that as real prices decline, real wealth rises, increasing consumer demand for goods; the Keynes or interest rate effect, which states that as real prices decline, the demand for money decreases, causing interest rates to decline and borrowing for investment and consumption to rise; and the net export effect, which states that as real prices rise, domestic goods become less competitive abroad, leading to a decrease in borrowing for investment and consumption.
The foundations of aggregate demand are provided by the IS-LM model (itself discussed above). It provides a solution to the query, “What is the amount of items required at any given price level?” This model demonstrates what output and interest rate levels will maintain market equilibrium for both goods and money. The money market is modeled to give equilibrium between the money supply and liquidity preference, while the goods market is modeled to give equality between investment and public and private saving (IS).
The points (combinations of income and interest rate) on the IS curve where investment, given the interest rate, equals public and private saving, given output, are shown by the arrows. Because of the inverse link between output and interest rates, the IS curve slopes downward.
