Ec102_FE_Review_Summary_F10

Ec102_FE_Review_Summary_F10 - EC102(01(02) Chapter15: o o o...

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EC 102(01) (02) – Final Exam Review Summary F10 1 Chapter 15:  Aggregate Demand Effects of Changes in the Money Supply o pp. 366-74 o Closed Economy o Open Economy o Flexible Exchange Rate o Fixed Exchange Rate Chapter 14:  Aggregate Demand and Aggregate Supply Recession o Definition o http://en.wikipedia.org/wiki/Recession     Three Key Facts about Economic Fluctuations o Economic Fluctuations are Irregular and Unpredictable o Most Macroeconomic Quantities Fluctuate Together o As Output Falls, Unemployment Rises Okun’s Law o Change in cyclical unemployment = o * (percent change in real GDP  - 4 %) Aggregate Demand o Definition Aggregate Demand Curve o Downward sloping Reasons:   o Export-Import Effect o Interest Rate Effect on Investment o Drawn holding all other variables constant i.e MS and FXR o Recall basic equation of national income accounting o GDP = C + I + G + X IM
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EC 102(01) (02) – Final Exam Review Summary F10 2
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EC 102(01) (02) – Final Exam Review Summary F10 3 Factors that Cause the Aggregate Demand Curve to Shift o Change in exports o Change in imports o Business and/or Consumer Confidence o Change in Government Policy o Fiscal Policy o Taxes o Transfer Payments o Government Expenditure o Monetary Policy Aggregate Supply Short-Run Aggregate Supply Curve (SRAS) o Upward Sloping o Output (Y) and Price Level (P) are positively related o Why? o Recall:  Profit per unit = Price per unit - Production cost per unit o So if price per unit increases and production cost per unit stays the same, then profit per unit  will increase and aggregate supply will increase Reasons for Upward Slope of SRAS Curve Sticky Wage Theory o Definition Examples of Sticky Wage Theory (P > P e ) o Suppose firms  a year ago expected the price level to be $100 and agreed to pay workers  $20 an hour o However, the price level turned out to be $105 o Prices turn out to be  more  than expected o Or the actual price,  P  level is  more  than the expected price level  P e o Since P is greater than  P e , the firm gets 5 percent more than expected for each unit of the  product that it sells o Production is more profitable so the firm hires more workers and increases the quantity of  output supplied o The stickiness of wages gives the firm an incentive to produce more than the natural rate of 
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EC 102(01) (02) – Final Exam Review Summary F10 4 output when P turns out to be greater than P e
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EC 102(01) (02) – Final Exam Review Summary F10 5 Examples of Sticky Wage Theory (P < P e ) o Suppose firms  a year ago expected the price level to be $100 and agreed to pay workers  $20 an hour o However, the price level turned out to be $95
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This note was uploaded on 12/22/2010 for the course ECON 102 taught by Professor ? during the Winter '08 term at Waterloo.

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Ec102_FE_Review_Summary_F10 - EC102(01(02) Chapter15: o o o...

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