intro - E202 Framework STYLIZED FACTS Long-run(secular...

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E202 - Framework 1 STYLIZED FACTS Long-run (secular) • Growth in output • Slower growth 1973 - 1995 Short-run • Output fluctuates around its trend growth (the business cycle) • Smaller fluctuations since WWII
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E202 - Framework 2 MACRO FRAMEWORK The economy is aggregated into five types of agents (or SECTORS ) : Household Business (firm) Government Foreign Financial Agents interact with each other in three set of markets : Goods (and services) Factors of production (e.g. labor) Financial assets > Bank reserves > Loanable funds Balance Outlays Funds from Goods Mkt./Factor Mkts./Non-market Receipts Sector HH Firm Govt. Foreign
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E202 - Framework 3 Demand Supply Pirce Axis Quantity Axis Markets Goods Labor Loanable Funds Bank Reserves GOODS MARKET Short-Run Long-Run Q = real domestic product P = domestic product deflator Aggregate Supply – output/pricing decisions of firms Short-run • assumes “sticky” prices Long-run • assumes full price and wage adjustment
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intro - E202 Framework STYLIZED FACTS Long-run(secular...

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