ECO 285 HW#8

ECO 285 HW#8 - original market equilibrium that is at full...

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Garrett Mehlberg Homework #8 The Vertical line is called LRAS is the Long run aggregate supply and it is vertical because the Neoclassicists believe that aggregate supply will eventually become vertical due to the fluctuation in aggregate demand. The LRAS line also coincides with the quantity of employment labeled Y f or Full employment. The line labeled SRAS is the short run aggregate supply which is a positive sloping line due to normal supply. The line labeled AD’ is aggregate demand prime which shifted from the original aggregate demand because the economy is in a recession, AD’ is equal to C (consumer spending) + I (investment) + G (government spending). The line labeled AD’’ is aggregate demand double prime and shifted from AD’ because of an increase in government spending due to events like war. Point 1 is the
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Unformatted text preview: original market equilibrium that is at full employment and a good wage rate. Point 3 is the movement into a recession when wages and employment fall due to the way the economy is reacting. Point 4 is the movement to full employment during the recession which results in even lower wages. Finally point 5 is when government increases spending and there is more need for jobs at a higher wage rate. According to the neoclassicists the market will fix itself in time because of the needs of the economy. Many non-neoclassicist believe that this theory of self correction may be right but it takes to long to actually self correct. I myself believe that the economy will self correct but if we can we should try to do anything we can to make sure people are ruined beyond help in the process....
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This note was uploaded on 04/30/2008 for the course NOT 001 taught by Professor Notaprofessor during the Spring '08 term at N. Arizona.

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