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Unformatted text preview: Changes and Levels Perhaps these graphs will help with what is admittedly a difficult set of distinctions. The graphs show the hypothetical behavior of real GDP and full employment real GDP in 3 scenarios (because I am an academic, I need to point out that the vertical axis is a logarithmic scale, but you dont have to worry about this). The real GDP line shows the net impact of the shifts in AS and AD over time and the full employment real GDP line shows the net impact of technology and increasing factor supplies over time. All 3 scenarios are consistent with the statement real GDP growth is 4% while full- employment GDP growth is 3%. At time 0, in graph A, real GDP is equal to full employment real GDP, so that unemployment is at the natural rate and there is no tendency for inflation to rise at time 0 (but after time zero there will be a tendency for inflation to rise). In graph B at time 0, (but after time zero there will be a tendency for inflation to rise)....
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- Spring '08