Class Notes - 11-7-07

Class Notes - 11-7-07 - Macroeconomics Class Notes CHAPTER...

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Macroeconomics – Class Notes – 11/7/07 CHAPTER 20: AGGREGATE DEMAND and SUPPLY Factors the shift AD Curve (LEFT) Consumers become pessimistic Businesses become pessimistic Foreigners revolt against U.S goods Congress decreases government purchases The Fed sold Government securities Investment accounts for almost (2/3) of the drop in Real GDP in a recession Long-Run Aggregate Supply (A.S) Curve Long-Run Aggregate Supply Curve (LRAS) is vertical at full-employment GDP LRAS depends on: o Resource Base o Technology o Natural Rate of Unemployment Assume that LRAS curve is fixed When the expected rate of inflation = Actual Inflation, economy is on Long-Run Aggregate Supply curve. Output level is what economy produces when unemployment is at the natural rate (of unemployment) Shifts in Long-Run Aggregate Supply Curve Over time, these shift Long-Run Aggregate Supply right: o Greater Resource Base o Better Technology o Lower Natural Rate of Unemployment
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