Chapter 33 -- Carlos Pitta

Chapter 33 -- Carlos Pitta - Chapter 33 Aggregate Demand...

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CHAPTER 33 AGGREGATE DEMAND AND AGGREGATE SUPPLY 1 Chapter 33 Aggregate Demand and Aggregate Supply Instructor: Carlos Pitta
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CHAPTER 33 AGGREGATE DEMAND AND AGGREGATE SUPPLY 2 In this chapter, look for the answers to these questions: What are economic fluctuations? What are their characteristics? How does the model of aggregate demand and aggregate supply explain economic fluctuations? Why does the Aggregate-Demand curve slope downward? What shifts the AD curve? What is the slope of the Aggregate-Supply curve in the short run? In the long run? What shifts the AS curve(s)? 0
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CHAPTER 33 AGGREGATE DEMAND AND AGGREGATE SUPPLY 3 Introduction Over the long run, real GDP grows about 3% per year on average. In the short run, GDP fluctuates around its trend. recessions : periods of falling real incomes and rising unemployment depressions : severe recessions (very rare) Short-run economic fluctuations are often called business cycles . 0
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Three Facts About Economic Fluctuations 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 11,000 1965 1970 1975 1980 1985 1990 1995 2000 2005 $ The shaded bars are recessions U.S. real GDP, billions of 2000 dollars FACT 1 : Economic fluctuations are irregular and unpredictable. 0
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200 400 600 800 1,000 1,200 1,400 1,600 1,800 1965 1970 1975 1980 1985 1990 1995 2000 2005 $ Three Facts About Economic Fluctuations FACT 2 : Most macroeconomic quantities fluctuate together. Investment spending, billions of 2000 dollars 0
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0 2 4 6 8 10 12 1965 1970 1975 1980 1985 1990 1995 2000 2005 Three Facts About Economic Fluctuations FACT 3 : As output falls, unemployment rises. Unemployment rate, percent of labor force 0
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CHAPTER 33 AGGREGATE DEMAND AND AGGREGATE SUPPLY 7 Introduction , continued Explaining these fluctuations is difficult, and the theory of economic fluctuations is controversial. Most economists use the model of aggregate demand and aggregate supply to study fluctuations. This model differs from the classical economic theories economists use to explain the long run. 0
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CHAPTER 33 AGGREGATE DEMAND AND AGGREGATE SUPPLY 8 Classical Economics—A Recap The previous chapters are based on the ideas of classical economics, especially: The Classical Dichotomy , the separation of variables into two groups: real – quantities, relative prices nominal – measured in terms of money The neutrality of money : Changes in the money supply affect nominal but not real variables. 0
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AGGREGATE DEMAND AND AGGREGATE SUPPLY 9 Classical Economics—A Recap Most economists believe classical theory describes the world in the long run, but not the short run. In the short run, changes in nominal variables (like the money supply or P ) can affect real variables (like Y or the u-rate). To study the short run, we use a new model.
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This note was uploaded on 01/10/2011 for the course AEB 2514 taught by Professor Evandrummond during the Spring '09 term at University of Florida.

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Chapter 33 -- Carlos Pitta - Chapter 33 Aggregate Demand...

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