Principles of Economics- Mankiw (5th) 677

Principles of Economics- Mankiw (5th) 677 - of living. On...

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IN THIS CHAPTER YOU WILL . . . See how shifts in aggregate demand or aggregate supply can cause booms and recessions Use the model of aggregate demand and aggregate supply to explain economic fluctuations Learn three key facts about short-run economic fluctuations Consider how the economy in the short run differs from the economy in the long run Economic activity fluctuates from year to year. In most years, the production of goods and services rises. Because of increases in the labor force, increases in the capital stock, and advances in technological knowledge, the economy can produce more and more over time. This growth allows everyone to enjoy a higher standard
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Unformatted text preview: of living. On average over the past 50 years, the production of the U.S. economy as measured by real GDP has grown by about 3 percent per year. In some years, however, this normal growth does not occur. Firms find them-selves unable to sell all of the goods and services they have to offer, so they cut back on production. Workers are laid off, unemployment rises, and factories are left idle. With the economy producing fewer goods and services, real GDP and other measures of income fall. Such a period of falling incomes and rising A G G R E G A T E D E M A N D A N D A G G R E G A T E S U P P L Y 701...
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