THE ECONOMICS OF MONEY,BANKING, AND FINANCIAL MARKETS 652

620 PA R T V I I Monetary Theory FINANCIAL NEWS Aggregate Output, Unemployment, and the Price Level Newspapers and Internet sites periodically report data that provide information on the level of aggregate output, unemployment, and the price level Here is a list of the relevant data series, their frequency, and when they are published Aggregate Output and Unemployment Real GDP: Quarterly; published about two months after the end of a quarter Industrial production: Monthly Industrial production is not as comprehensive a measure of aggregate output as real GDP because it measures only manufacturing output: the estimate for the previous month is reported after about two months Unemployment rate: Monthly; the estimate for a month is reported two months later Price Level GDP deflator: Quarterly This comprehensive measure of the price level (described in the Web Appendix to Chapter 1) is published at the same time as the real GDP data Consumer price index (CPI): Monthly The CPI is a measure of the price level for consumers (also described in the Web Appendix to Chapter 1); the value for the previous month is published in the third or fourth week of the following month Producer price index (PPI): Monthly The PPI is a measure of the average level of wholesale prices charged by producers and is published in the third or fourth week of the following month ries, and other inputs to production, plus planned spending on new homes; government spending, spending by all levels of government (federal, provincial, and local) on goods and services (paper clips, computers, computer programming, missiles, government workers, and so on); and net exports, the net foreign spending on domestic goods and services, equal to exports minus imports Using the symbols C for consumer expenditure, I for planned investment spending, G for government spending, and NX for net exports, we can write the following expression for aggregate demandY ad: Y ad * C + I + G + N X Deriving the Aggregate Demand Curve (1) Examining the effects of changes in the price level on individual components of aggregate demand is one way to derive the aggregate demand curve The aggregate demand curve is downward-sloping because a lower price level (P *), holding the nominal quantity of money (M ) constant, leads to a larger quantity of money in real terms (in terms of the goods and services that it can buy, M/P c) The larger quantity of money in real terms (M/P c) that results from the lower price level causes interest rates to fall (i *), as suggested in Chapter The resulting lower cost of financing purchases of new physical capital makes investment more profitable and stimulates planned investment spending (I c) Because, as shown in Equation 1, the increase in planned investment spending adds directly to aggregate demand (Y ad c), the lower price level leads to a higher level of the quantity of aggregate output