BA_315_LN_11_AGGREGATE_SUPPLY_AND_DEMAND

BA_315_LN_11_AGGREGATE_SUPPLY_AND_DEMAND - AGGREGATE SUPPLY...

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1 AGGREGATE SUPPLY AND DEMAND Lecture Notes #11 BA 315: Economy, Industry, and Competitive Analysis Source: Schiller Chapter 11 Edited by Ali Emami Department of Finance Charles H. Lundquist College of Business University of Oregon
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2 Introduction This lecture Focuses on macroeconomic problems due to fluctuations in aggregate supply and aggregate demand. Major macroeconomic theories associated with Classical economics to present day economics for correcting macroeconomic problems are reviewed briefly. The purpose of the lecture is to provide answers to the following questions: 1. What are the major determinants of macro outcomes? 2. How do the forces of supply and demand fit into the macro picture? 3. What are the disagreements about causes and cures of macro ailments? Concepts you will learn Macroeconomics Unemployment S a y ' s L a w I n f l a t i o n Aggregate Demand Business Cycle R e a l G D P F i s c a l P o l i c y Aggregate Supply Monetary Policy Equilibrium (Macro) Supply-Side Policy
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3 Lecture Outline I. Macroeconomics f Definition: Macroeconomics - The study of aggregate economic behavior of the economy as a whole. II. Macro View A. Macro Outcomes (Figure 11.1) 1. Output - Total volume of goods and services produced (real GDP). 2. Jobs - Levels of employment and unemployment. 3. Prices - Average price of goods and services. 4. Growth - Year-to-year expansion in production capacity. 5. International balances - International value of the dollar, trade and payment balances with other countries B. Macro Determinants (Figure 11.1) 1. Internal market forces - Population growth, spending behavior, invention and innovation and the like. 2. External shocks - Wars, natural disasters, trade disruptions and so on. 3. Policy levers - Tax policy, government spending changes in the availability of money and regulation. III. Stable or Unstable A. Classical Theory – standard economic theory prior to 1930's 1. Self-Adjustment – According to the Classical view, the economy "self- adjusts" to deviations from its long-term growth. 2. The cornerstones of Classical optimism are: The Macro Economy DETERMINANTS OUTCOMES MACRO ECONOMY Policy levers Internal market External shocks Output Jobs Prices Growth International balances
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4 a. Flexible prices b. Flexible wages 3. Say's Law f Definition : Say’s Law - Supply creates its own demand. a. Unsold goods will ultimately be sold when buyers and sellers find an acceptable price. b. In the labor market, some people will be unemployed, but can find new jobs if they are willing to accept lower wages. 4. According to Classical economists, government intervention in a (self- adjusting) macro economy is unnecessary. 5. Inflation and unemployment (Figure 11.2). B.
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This note was uploaded on 04/22/2008 for the course ECON 315 taught by Professor Aliemami during the Spring '08 term at Oregon.

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BA_315_LN_11_AGGREGATE_SUPPLY_AND_DEMAND - AGGREGATE SUPPLY...

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