Lecture+13 - Economics 102 Lecture 13 Aggregate Demand...

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1 Economics 102 Lecture 13 : Aggregate Demand LECTURE 13 AGGREGATE DEMAND 1 Aggregate Demand § The economy is constantly being hit by shocks; e.g., a major hurricane, a stock market boom. § The economy fluctuates as it adjusts to a shock; we experience recessions and economic booms. § How do these shocks cause the economy to fluctuate? § We use the model of aggregate demand and aggregate supply to explain. LECTURE 13 AGGREGATE DEMAND 2 In this lecture, look for the answers to these questions: § What are economic fluctuations? What are their characteristics? § Why does the Aggregate-Demand curve slope downward? § What shifts the AD curve?
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2 LECTURE 13 AGGREGATE DEMAND 3 Introduction § Over the long run, real GDP grows about 3% per year on average. § In the short run, GDP fluctuates around its trend. recessions : periods of falling real incomes and rising unemployment depressions : severe recessions (very rare) § Short-run economic fluctuations are often called business cycles . LECTURE 13 AGGREGATE DEMAND 4 Three Facts About Economic Fluctuations 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 11,000 1965 1970 1975 1980 1985 1990 1995 2000 2005 $ The shaded bars are recessions U.S. real GDP, billions of 2000 dollars FACT 1 : Economic fluctuations are irregular and unpredictable. LECTURE 13 AGGREGATE DEMAND 5 200 400 600 800 1,000 1,200 1,400 1,600 1,800 1965 1970 1975 1980 1985 1990 1995 2000 2005 $ Three Facts About Economic Fluctuations FACT 2 : Most macroeconomic quantities fluctuate together. Investment spending, billions of 2000 dollars
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3 LECTURE 13 AGGREGATE DEMAND 6 0 2 4 6 8 10 12 1965 1970 1975 1980 1985 1990 1995 2000 2005 Three Facts About Economic Fluctuations FACT 3 : As output falls, unemployment rises. Unemployment rate, percent of labor force LECTURE 13 AGGREGATE DEMAND 7 Introduction , continued § Explaining these fluctuations is difficult, and there is some debate regarding the appropriate theory of economic fluctuations.
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Lecture+13 - Economics 102 Lecture 13 Aggregate Demand...

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