Lecture%2023 - Economics 102 Lecture 23: Course Conclusion...

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1 Economics 102 Lecture 23 : Course Conclusion LECTURE 23 COURSE CONCLUSION 1 In this lecture, look for the answers to these questions: § What are the most important lessons we have learned about the workings of the macro economy? § How does real business cycle theory explain economic fluctuations? § What is the nature of the looming fiscal challenge due to Social Security and Medicare obligations? LECTURE 23 COURSE CONCLUSION 2 Important Macro Lessons Lesson 1 : In the short run, changes in aggregate demand can influence the quantity of G&S a country produces but not in the long run . § Implications Monetary and fiscal policy may be useful in affecting real output in the short run but will only change the price level (rate of inflation) in the long run . [Note: fiscal policy may have long-run effects on output if it changes the natural rate of output.]
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2 LECTURE 23 COURSE CONCLUSION 3 Important Macro Lessons Lesson 2 : In the long run, the quantity of G&S produced in a country is completely determined by . § Implications: A country’s standard of living depends on its ability to . Policies intended to improve economic growth and living standards must focus on aggregate supply . Preconditions for growth focus on institutions LECTURE 23 COURSE CONCLUSION 4 Important Macro Lessons Lesson 3 : In the short run, policymakers who control monetary and fiscal policy face a tradeoff between inflation and unemployment . § Implications It is costly to reduce the rate of inflation. [An argument for never allowing a high rate of inflation in the first place.] LECTURE 23 COURSE CONCLUSION 5 Important Macro Lessons Lesson 4 : In the long run, the rate of growth of the money supply determines the rate of inflation but does not affect real output or the unemployment rate. § Implications The central bank is responsible for the rate of inflation in the long run.
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3 LECTURE 23 COURSE CONCLUSION 6 Business Cycles Business cycles are easy to describe but hard to explain. Two approaches to understanding business cycles are: § Mainstream business cycle theory § Mainstream Business Cycle Theory : Because natural GDP grows at a steady pace while aggregate demand grows at a fluctuating rate, real GDP fluctuates around potential GDP. LECTURE 23
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This note was uploaded on 04/02/2008 for the course ECON 102 taught by Professor Rossana during the Fall '08 term at University of Michigan.

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Lecture%2023 - Economics 102 Lecture 23: Course Conclusion...

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