IntroADandAS

IntroADandAS - Three Facts About Economic Fluctuations The...

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PRINCIPLES OF MACROECONOMICS Intro AGGREGATE DEMAND & AGGREGATE SUPPLY – The Short Run I Foster
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2 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 GDP and rising unemployment Depressions : severe recessions (very rare) Short-run economic fluctuations are often called business cycles .
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3 John Maynard Keynes, 1883-1946 The General Theory of Employment, Interest, and Money , 1936 Argued recessions and depressions can result from inadequate demand; policymakers should employ measures to counteract it. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us when the storm is long past, the ocean will be flat. The long run is a misleading guide to current affairs. In the long run, we are all dead.
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Unformatted text preview: Three Facts About Economic Fluctuations The shaded bars are recessions U.S. real GDP, billions of 2000 dollars FACT 1 : Economic fluctuations are irregular and unpredictable. 4 Three Facts About Economic Fluctuations FACT 2 : Most macroeconomic quantities fluctuate together. Investment spending, billions of 2000 dollars 5 Three Facts About Economic Fluctuations FACT 3 : As output falls, unemployment rises. Unemployment rate, percent of labor force 6 7 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 unemployment rate). To study fluctuations in the short run, we use a new model - the model of aggregate demand and aggregate supply . Classical Economics...
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This note was uploaded on 02/28/2011 for the course ECON 011 taught by Professor Yezer during the Spring '07 term at GWU.

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IntroADandAS - Three Facts About Economic Fluctuations The...

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