Economics 100B - 27 (4-24-07)

Economics 100B - 27 (4-24-07) - Economics 100B Professor...

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Economics 100B Professor Steven Wood 4/24/07 Lecture 27 ASUC Lecture Notes Online (formerly Black Lightning) is the only authorized note-taking service at UC Berkeley. Please do not share, copy or illegally distribute these notes. Our non-profit, student-run program depends on your individual subscription for its continued existence. These notes are copyrighted by the University of California and are for your personal use only. LECTURE Today we will continue our discussion of inflation through the dynamic aggregate demand curve model. AD Curve The aggregate demand curve was based on levels of the underlying variables. The levels of autonomous planned spending, tax rates, money demand and the money supply gave us the level of income, interest rates, and the price level. The DAD Curve The dynamic aggregate demand curve is based on levels of the underlying variables relative to potential output Y*. The levels of autonomous planned spending, tax rates, money demand, and money supply still determine the level of income and interest rates, and when compared to potential output, also imply the rate of inflation. Just like our previous aggregate demand curve, we have an inverse relationship. The inverse relationship of the DAD curve is between inflation and equilibrium income relative to potential output. The DAD curve is downward sloping to the right because: 1) Higher inflation reduces the real money supply. 2) Higher interest rates. 3) Less borrowing and, 4) Less spending and equilibrium income. It is possible to go through the math to derive the DAD from the AD, but due to its messiness we will skip this. The DAD-SAS Model
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This note was uploaded on 09/20/2009 for the course ECON ECON taught by Professor Shomali during the Spring '04 term at University of California, Berkeley.

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Economics 100B - 27 (4-24-07) - Economics 100B Professor...

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