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ECON PRELIM 2 - ECON PRELIM 2 1 Short-run Aggregate supply...

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ECON PRELIM 2 1. Short-run Aggregate supply is derived by what? - Capacity constraints and input prices. 2. What are the causes of inflation? - Sustained inflation, Demand-pull, cost-push, future expectations, and accommodations by the Federal Reserve. 3. What are the important aspects of the Classical View with regards to employment? - Labor market always clears, there is no cyclical unemployment, and in the long-run, wages fully adjust to output prices. 4. Unemployment rate is not a good indicator of what? - Labor Market Performance 5. What are the reasons for unemployment? - Sticky wages, Efficiency wage theory, imperfect information, minimum wage laws. 6. What are the types of time lags in the economy? - Recognition lags, implementation lags, response lags. 7. What is the effective policy response? - During periods of low output/ low inflation, a decrease in ‘r’ results in an increase in the money supply which shifts the aggregate demand curve out. This creates a large increase in output but only increases price by a small amount.
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