assign5 - Intro Macro N. Sheflin ASSIGNMENT 5 NOTES We look...

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I n t r o M a c r o N . S h e f l i n ASSIGNMENT 5 NOTES We look at the economy in the short-run, including some aspects of business cycles (short-run economic fluctuations) and begin to develop the short-run Keynesian model by looking at aggregate demand and its main components, Consumption and Investment, in some detail Discussion of business cycles (short-run economic fluctuations) and the Keynesian model intended to explain them. The 45 degree line diagram is a ‘cute’ way of showing the simultaneous solution of C=f(Y) and Y=f(C). Demonstrates the multiplier. Basically the Keynesian Cross (45 degree line diagram) with prices assumed constant allows us to derive the aggregate demand curve. Also focuses us on the role of unintended investment/inventories as a buffer and the conditions for SR equilibrium. Two KEY Keynesian points: desired saving and investment need not be equal at full employment output in the short-run and thus the economy can be in equilibrium BELOW full employment. This is equivalent to aggregate demand can be too low. Work on your resume . In addition to having one when the President offers you a position, it will show you if you are doing the right things in college ( see below ). More on advisement Due before class on Monday 2/15 READING Samuelson – chapter 7 (excluding section D of chapter 7– Fiscal Policy) and then 6. Also Look at the NBER Business Cycle Chronologies at: http://www.nber.org/cycles.html And their discussion/determination of the beginning date for this recession at: http://www.nber.org/cycles/dec2008.html And Economic Indicators at: And some details at: http://www.conference-board.org/economics/bci/component.cfm OUTLINE AND KEY POINTS read carefully before and after reading the textbook chapters (note this follows chapter 7 then 6) Characteristics of Business Cycles o Chronology of downturns ± Often stock prices fall in advance of downturn, (as do other leading economic indicators) ± Decline in investment and aggregate demand and gdp ± Increase in inventories ± Decline in employment, prices, interest rates, profits, but generally
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assign5 - Intro Macro N. Sheflin ASSIGNMENT 5 NOTES We look...

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