massign3 - 1 Money and Banking N. Sheflin Assignment 3...

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1 Money and Banking N. Sheflin Assignment 3 NOTES : A (too) quick review of the aggregate demand and supply model, applied to the shprt-run (Keynesian) and long- run (Classical). I NVESTMENT GAME BEGINS – ROUNDS 0 and 1 READING Croushore chapter 12, and the Phillips curve from 17 – Policy Perspective The Phillips Curve starting on page 378, and chapter 10 (Go light on lr growth material), SKIP chapter 13 IMPORTANT look at my notes below as the book is rather skimpy on some of this. Meet John Maynard Keynes at: http://www.bized.co.uk/virtual/economy/library/economists/keynes.htm And Milton Friedman at http://www.bized.co.uk/virtual/economy/library/economists/friedman.htm And maybe glance at Paul Krugman’s critique and explanation of macroeconomics at KEY POINTS aggregate demand: – shifts and movements along; slope; C,I,G,NX; Aggregate Supply: shifts and movements along; short-run versus long-run; Keynesian versus Classical models and policy. SHORT-RUN AND LONG-RUN AGGREGATE DEMAND AND SUPPLY MODELS. p – overall price level; y – real output; D demand; S -supply; C -consumption; I -investment (plant and equipment); G government spending; i=interest rate; $=dollar exchange rate i or r = interest rate M=imports X=exports Ms money supply Keynesian Model: short-run (0-3 years), below full-employment economy o determine y (real output) and P (aggregate price level and inflation) o Aggregate Demand = C+I+G+NX (NX=Exports-Imports) ± C=f(Y-T) C=consumption, Y= real gdp, T=taxes Y-T = disposable income ± I=f(i) I=real investment in plant and equipment i=interest rate ± G exogenous G=government purchases of goods and services ± NX=X-M X=f(foreign income, $) X=exports M=f(Y,$) M=imports ± Aggregate Demand curve is downward sloping P up -> Quantity demanded down (D curve downward sloping) o P up -> M/P down ->i up ->I down ->Qd down o Also P up -> M/P down ->i up ->$ up -> X down -> Qd down ± Shifts in Aggregate Demand curve changes in C,I,G,NX shift agg D curve by a multiple o multiplier effect o G up -> I down and partial crowding out o Aggregate Supply curve reflects cost, technology, etc
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This note was uploaded on 10/11/2011 for the course ECON 336 taught by Professor Hassan during the Spring '08 term at Rutgers.

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massign3 - 1 Money and Banking N. Sheflin Assignment 3...

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