Chapter 9

Chapter 9 - Kimberly Zhang Chapter 9 Business cycle short...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Kimberly Zhang Chapter 9 Business cycle: short run fluctuations in output and unemployment In the long run, prices are flexible and can respond to changes in supply or demand o In the short run, many prices are “sticky” at some predetermined level o Economic policies have different effects over different time horizons In long run, money supply affects nominal variables (measured in terms of money) Money supply would affect prices In short run, prices don’t respond to changes in monetary policy (eg, no changes in menu prices) Output, unemployment change instead of price Classical dichotomy no longer holds since nominal variables can influence real variables Aggregate demand o Downward sloping MV = PY If V is fixed, money supply determines dollar value of all transactions If price rises, each transaction requires more dollars, output must fall Increase in money supply shifts aggregate demand right Aggregate supply o In classical model (long run), output does not depend on price
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 3

Chapter 9 - Kimberly Zhang Chapter 9 Business cycle short...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online