Chap018 - Chapter 18 Extending the Analysis of Aggregate...

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Chapter 8 / Exercise 15
Economics
Arnold
Expert Verified
Chapter 18 - Extending the Analysis of Aggregate SupplyCHAPTER EIGHTEENEXTENDING THE ANALYSIS OF AGGREGATE SUPPLYCHAPTER OVERVIEWThis is the first chapter of Part nine, “Extensions and Issues.” This chapter explains the difference between long-run and short-run aggregate supply; it examines the unemployment-inflation relationship and assesses the effect of taxes on aggregate supply.WHAT’S NEWAdded clarification that in the long run the economy achieves the natural rate of unemployment and the realpotential GDP. This was also added as a bullet point to Quick Review 35.1.Revised the section that discusses persistent inflation and the aggregate demand-aggregate supply modeland renamed it, “Economic Growth and Ongoing Inflation.”All relevant tables and graphs have been updated with current data.INSTRUCTIONAL OBJECTIVESAfter completing this chapter, students should be able to:1. Explain the difference between the short-run and long-run aggregate supply curves and their significance for economic policy.2. Distinguish between demand-pull and cost-push inflation using the extended aggregate demand-aggregate supply model.3. Explain and construct a traditional short-run Phillips Curve using the aggregate demand-aggregate supply model.4. Differentiate between the short-run and long-run Phillips Curves.5. Identify the supply-side shocks to the U.S. economy in the 1970s and 1980s.6. Use an aggregate demand-aggregate supply graph to show how supply-side shocks led to stagflation in the 1970s and 1980s.7. Explain why we may observe continued levels of inflation in the economy using the AD-AS model.8. Explain why demand-management policies cannot eliminate stagflation.9. Explain two possible effects of taxation on aggregate supply.10. Explain the Laffer Curve concept and list three criticisms of this theory.11. Define and identify terms at the end of the chapter.COMMENTS AND TEACHING SUGGESTIONS1. The Phillips Curve controversy can be introduced by using actual data such as that shown in Figure 35.8b and 35.9. Ask students if they can see any discernible pattern between unemployment and inflation data without viewing the curves.18-1
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Chapter 8 / Exercise 15
Economics
Arnold
Expert Verified
Chapter 18 - Extending the Analysis of Aggregate Supply2. The aggregate supply and demand model can also be helpful in explaining why demand management policies might entail supply-side effects that limit the attainment of policy goals. The shifts in Figures 35.4 and 35.5 illustrate this problem.3. Demand-pull and cost-push inflation were introduced earlier, so they should be familiar. However, areview of the aggregate demand and supply model would be a useful way to begin the discussion. Explain that it is difficult to distinguish the two types of inflation in the real world, since the causes of inflation are complex. Use Figure 35.3 and 35.4 to illustrate.4. A speaker who can recall a time or country where wage-price controls were used, and the problems associated with them might be interesting for students, who might otherwise believe these controls are a simple solution.5.

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