Econ 102 - Prelim 2 Review - Aggregate Demand, Aggregate...

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Aggregate Demand, Aggregate Supply, Inflation (1) Chapter 13 Goal of Chapter: Explain Equilibrium Price Level and Causes of Inflation AD Curve Definition and Derivation (Goods and Money Market Linkages) Not Sum of Market Demand Curves At Each Point: Goods & Money Markets in Equilibrium Shifts when Policy Variables (G, T, M S ) Change Short-Run AS Curve Definition and Derivation (Capacity Constraints and Input Price Adjustments) Not Sum of Market Supply Curves At Each Point: Set of Firms Price/Output Decisions Shifts Due to Cost Shocks, Growth/Stagnation, Natural Disasters and Public Policy SR Equilibrium: Intersection of AD and SR AS Curves Determines SR Equilibrium Price Level and Aggregate Output Long-Run AS Curve is Vertical: Input Costs Fully Adjust to Changes in Overall Price Level LR Aggregate Output = Potential Output = Largest Value of Y Sustainable in LR without Inflation
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Aggregate Demand, Aggregate Supply, Inflation (2) Chapter 13 Effects of Monetary and Fiscal Policy Shifts in AD Curve Effects on P and Y Depend on Region of AS Curve Classical View: Monetary and Fiscal Policy Have No Effect in LR Causes of Inflation Demand-Pull Movements in AD Curve Cost-Push Movements in AS Curve Expectations Accommodation by Federal Reserve Sustained Inflation is Monetary Phenomenon
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Labor Market, Unemployment, Inflation (1) Chapter 14 Definitions LF = E + U Unemployment Rate = U/LF Three Types of Unemployment E Tends to Move in Same Direction as Y Classical Labor Market Labor Demand Curve Labor Supply Curve Wages Fully Adjust to Output Price Changes in LR Labor Market Always Clears: No Cyclical
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This note was uploaded on 05/18/2008 for the course ECON 1120 taught by Professor Wissink during the Spring '05 term at Cornell University (Engineering School).

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Econ 102 - Prelim 2 Review - Aggregate Demand, Aggregate...

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