ch.15 - Ch.15 Aggregate Demand and Aggregate Supply In...

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Ch.15 Aggregate Demand and Aggregate Supply In macro, we are concerned with two types of issues: 1. Long-run economic growth 2. Short run economic fluctuations (i.e the economy’s deviations from its long-run growth path) Economic activity fluctuates from year to year. - in most years production of goods and services rises. - On average over the past 130 years, production in the Canadian economy (i.e, real GDP per person) has grown by about 2% per year. - In some years normal growth does not occur, causing a recession. Definitions: A recession is: a period of declining real incomes, and rising unemployment. A depression is: a severe recession. Three facts about Economic Fluctuations 1. Economic fluctuations are irregular and unpredictable. - Fluctuations in the economy are often called the business cycle. 2. Most macroeconomic variables fluctuate together, but by different amounts. 3. As output falls, unemployment rises. - changes in real GDP are inversely related to changes in the unemployment rate. - During times of recession, unemployment rises substantially. (Output  GDP  Production) Explaining Short-run economic fluctuations How the short-run differs from the long-run: -Most economists believe that classical theory describes the world in the long run but not in the short run. In other words, while changes in MS do not affect real variables in the long run, they do affect real variables in the short run. In particular, changes in MS can temporarily push output away from its long run trend. Our objective is to develop a model to analyze short term fluctuations in the economy.
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The aggregate demand and supply Economists use the model of aggregate demand and aggregate supply to explain short-run fluctuations in economic activity around its long-run trend. - The aggregate-demand curve shows the quantity of goods and services that households, firms, and the government want to buy at each price level. - The aggregate-supply curve shows the quantity of goods and services that firms (in the aggregate) choose to produce and sell at each level. The aggregate demand (AD) curve
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This note was uploaded on 12/08/2009 for the course TEFLER ADM1300 taught by Professor Koppel during the Fall '09 term at University of Ottawa.

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ch.15 - Ch.15 Aggregate Demand and Aggregate Supply In...

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