Lecture20--STABILITYANDGROWTH

Lecture20--STABILITYANDGROWTH - Economic Stability and...

Info iconThis preview shows pages 1–6. Sign up to view the full content.

View Full Document Right Arrow Icon
Economic Stability and Growth 1. The classical vs. the Keynesian models 2. Can the economy grow without inflation?
Background image of page 1

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

View Full DocumentRight Arrow Icon
The Classical Model Step 1 : The economy is in macroeconomic equilibrium at full employment E1 E1 Potential Real GDP Price Level Real GDP Initial Aggregate Demand Initial Aggregate Supply
Background image of page 2
Step 2: Aggregate Demand Declines and the economy moves into a recession as equilibrium real GDP declines below potential real GDP E1 E1 Potential Real GDP Price Level Real GDP Initial Aggregate Demand Initial Aggregate Supply E’ New Aggregate Demand
Background image of page 3

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

View Full DocumentRight Arrow Icon
Step 3: As labor and other input surpluses develop, nominal wages and other input prices fall causing aggregate supply to increase. The economy reaches a new equilibrium at potential real GDP and a lower price level Potential Real GDP Price Level Real GDP Initial Aggregate Demand Initial Aggregate Supply E’ New Aggregate demand New Aggregate Supply E1 E1 E2
Background image of page 4
Conclusion: Wage and price flexibility assure that the economy will return to full employment in the long run after
Background image of page 5

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

View Full DocumentRight Arrow Icon
Image of page 6
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 02/08/2010 for the course EC 205 taught by Professor Hyman during the Spring '08 term at N.C. Central.

Page1 / 14

Lecture20--STABILITYANDGROWTH - Economic Stability and...

This preview shows document pages 1 - 6. Sign up to view the full document.

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