Lecture 17 Notes

Lecture 17 Notes - ECN 211 Macroeconomic Principles L17:...

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10/19/09 1 ECN 211 Macroeconomic Principles L17: Analyzing Aggregate Expenditures- Looking at the demand-side of the economy.
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10/19/09 2 AS/AD Model Summary AD 0 LRAS SRAS 0 P Y In LR AS is vertical because prices are flexiable P 0 Y 0
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10/19/09 3 Keynesian Economics • What if (all) prices were fixed ? • Fixed at least for the SR (short run) • This means the supply side of the economy can expand to provide all that is demanded – There is always excess capacity • The AS curve would then be horizontal – This was assumed by John Maynard Keynes when he was looking at the macro economy during the great depression.
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10/19/09 4 Keynesian Aggregate Supply Only AD determines equilibrium real GDP
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• Assuming a horizontal AS curve – Possible to have excess capacity (be at low levels of real GDP) – Large levels of unemployment Like during the “great Depression” – Resource prices are “sticky downwards” Thus the AS is drawn at a given level of prices. – People are willing and able to work at the current
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This note was uploaded on 03/03/2010 for the course ECN 211 taught by Professor Kingston during the Spring '08 term at ASU.

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Lecture 17 Notes - ECN 211 Macroeconomic Principles L17:...

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