mankiw7e-chap09 - In this chapter, you will learn: facts...

Info iconThis preview shows pages 1–11. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: In this chapter, you will learn: facts about the business cycle how the short run differs from the long run an introduction to aggregate demand an introduction to aggregate supply in the short run and long run how the model of aggregate demand and aggregate supply can be used to analyze the short-run and long-run effects of shocks. Chapter 9: I ntr oduction to Economic Fluctuation 2 CHAPTER 9 Introduction to Economic Fluctuations Facts about the business cycle GDP growth averages 33.5 percent per year over the long run with large fluctuations in the short run. Consumption and investment fluctuate with GDP, but consumption tends to be less volatile and investment more volatile than GDP. Unemployment rises during recessions and falls during expansions. Okuns Law : the negative relationship between GDP and unemployment. Growth rates of real GDP, consumption Percent change from 4 quarters earlier Average growth rate Real GDP growth rate Consumption growth rate Growth rates of real GDP, consumption, investment Percent change from 4 quarters earlier Investment growth rate Real GDP growth rate Consumption growth rate Unemployment Percent of labor force Okuns Law Percentage change in real GDP Change in unemployment rate =- 3 2 Y u Y 1975 1982 1991 2001 1984 1951 1966 2003 1987 2008 1971 7 CHAPTER 9 Introduction to Economic Fluctuations Time horizons in macroeconomics Long run Prices are flexible, respond to changes in supply or demand. Short run Many prices are sticky at a predetermined level. The economy behaves much differently when prices are sticky. 8 CHAPTER 9 Introduction to Economic Fluctuations Recap of classical macro theory (Chaps. 3-8) Output is determined by the supply side: supplies of capital, labor technology Changes in demand for goods & services ( C , I , G ) only affect prices, not quantities. Assumes complete price flexibility. Applies to the long run. 9 CHAPTER 9 Introduction to Economic Fluctuations When prices are sticky output and employment also depend on demand, which is affected by: fiscal policy ( G and T ) monetary policy ( M ) other factors, like exogenous changes in C or I 10 CHAPTER 9 Introduction to Economic Fluctuations The model of aggregate demand and supply The paradigm most mainstream economists and policymakers use to think about economic fluctuations and policies to stabilize the economy Shows how the price level and aggregate output are determined Shows how the economys behavior is different in the short run and long run 11...
View Full Document

Page1 / 36

mankiw7e-chap09 - In this chapter, you will learn: facts...

This preview shows document pages 1 - 11. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online