ch9c - How shocking! shocks: exogenous changes in aggregate...

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slide 0 CHAPTER 9 Introduction to Economic Fluctuations How shocking!!! shocks : exogenous changes in aggregate supply or demand Shocks temporarily push the economy away from full employment. Business cycles arise because the economy is constantly shocked away from its long-run equilibrium.
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slide 1 Shocks Example: expanded use of credit cards. The demand for money is reduced. People buy interest-bearing assets price of bonds goes up, interest rate goes down more demand for investment and consumption. CHAPTER 9 Introduction to Economic Fluctuations
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slide 3 Now you try … Suppose the Fed decides to stabilize this fluctuation – help the economy converge back to the long-run equilibrium, what should it do? Using the diagram, show what changes will take place after the Fed implements the policy you just recommended. CHAPTER 9 Introduction to Economic Fluctuations
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slide 4 CHAPTER 9 Introduction to Economic Fluctuations Supply shocks A supply shock
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ch9c - How shocking! shocks: exogenous changes in aggregate...

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