chapter 23 - Chapter 23 Aggregate Demand and Aggregate...

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Chapter Aggregate Demand and Aggregate Supply 23
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Supply Economic activity Fluctuates from year to year Economic fluctuation Business cycle Recession Economic contraction Period of declining real incomes and  rising unemployment Depression Severe recession 2
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3 Key Facts About Economic  Fluctuations 1. Economic fluctuations are irregular and  unpredictable 2. Most macroeconomic quantities fluctuate  together 3. As output falls, unemployment rises 3
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Figure A look at short-run economic fluctuations (a) 1 4 This figure shows real GDP in panel (a), investment spending in panel (b), and unemployment in panel (c) for the U.S. economy using quarterly data since 1965. Recessions are shown as the shaded areas. Notice that real GDP and investment spending decline during recessions, while unemployment rises.
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Figure A look at short-run economic fluctuations (b) 1 5 This figure shows real GDP in panel (a), investment spending in panel (b), and unemployment in panel (c) for the U.S. economy using quarterly data since 1965. Recessions are shown as the shaded areas. Notice that real GDP and investment spending decline during recessions, while unemployment rises.
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Figure A look at short-run economic fluctuations (c) 1 6 This figure shows real GDP in panel (a), investment spending in panel (b), and unemployment in panel (c) for the U.S. economy using quarterly data since 1965. Recessions are shown as the shaded areas. Notice that real GDP and investment spending decline during recessions, while unemployment rises.
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Explaining Short-Run Economic  Fluctuations The assumptions of classical economics Classical dichotomy Separation of variables into Real variables Nominal variables Monetary neutrality Changes in the money supply Affect nominal variables Do not affect real variables 7
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Explaining Short-Run Economic  Fluctuations The reality of short-run fluctuations Long-run Classical theory holds Changes in money supply Affect prices, and other nominal variables Do not affect real GDP, unemployment, or other  real variables 8
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Explaining Short-Run Economic  Fluctuations The reality of short-run fluctuations Short-run Assumption of monetary neutrality - no  longer appropriate Real and nominal variables are highly  intertwined Changes in the money supply Can temporarily push real GDP away from its  long-run trend 9
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Explaining Short-Run Economic  Fluctuations supply Model that most economists use to explain Short-run fluctuations in economic activity Around its long-run trend Aggregate-demand curve Shows the quantity of goods and services That households, firms, the government, and  customers abroad Want to buy at each price level 10
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This note was uploaded on 05/13/2011 for the course BUS 5000 taught by Professor Hu during the Summer '07 term at Chaminade University.

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chapter 23 - Chapter 23 Aggregate Demand and Aggregate...

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