chapter23_Aggregate Demand and Supply - Do Thi Thuy Phuong...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Do Thi Thuy Phuong Macroeconomics Professor: Jonathan A.M Nguyen AGGREGATE DEMAND AND SUPPLY I. Economic activity fluctuates from year to year. Recession : a period of declining real incomes and rising unemployment. Depression : a severe recession . II. Three Key Facts about Economic Fluctuations Economic Fluctuations Are Irregular and Unpredictable Called the business cycle.Correspond to changes in business conditions. Not at all regular and are almost impossible to predict. Most Macroeconomic Quantities Fluctuate Together Real GDP: examine short-run changes in the economy.However, most macroeconomic variables that measure some type of income, spending, or production fluctuate closely together. As Output Falls, Unemployment Rises Changes in the economy’s output level will have an effect on the economy’s utilization of its labor force.When firms choose to produce a smaller amount of goods and services, they lay off workers, which increases the unemployment rate. III. Explaining Short-Run Economic Fluctuations The Assumptions of Classical Economics The classical dichotomy is the separation of variables into real variables and nominal variables. According to classical theory, changes in the money supply only affect nominal variables. The Reality of Short-Run Fluctuations Most economists believe that the classical theory describes the world in the long run but not in the short run. The Model of Aggregate Demand and Aggregate Supply Model of aggregate demand and aggregate supply : the model that most economists use to explain short-run fluctuations in economic activity around its long-run trend. IV.
Background image of page 1

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

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 06/20/2011 for the course ECON 123 taught by Professor Mrews during the Spring '11 term at Korea Advanced Institute of Science and Technology.

Page1 / 3

chapter23_Aggregate Demand and Supply - Do Thi Thuy Phuong...

This preview shows document pages 1 - 2. Sign up to view the full document.

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