Lec04handout

Lec04handout - Aggregate Demand and Aggregate Supply Slide...

Info iconThis preview shows pages 1–12. Sign up to view the full content.

View Full Document Right Arrow Icon
Aggregate Demand and Aggregate Supply Slide #04 Intro Macro 1
Background image of page 1

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

View Full DocumentRight Arrow Icon
Aggregate Demand & Aggregate 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 Intro Macro 2
Background image of page 2
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 Intro Macro 3
Background image of page 3

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

View Full DocumentRight Arrow Icon
A look at short-run economic fluctuations (a) 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.
Background image of page 4
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.
Background image of page 5

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

View Full DocumentRight Arrow Icon
A look at short-run economic fluctuations (c) 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.
Background image of page 6
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 Intro Macro 7
Background image of page 7

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

View Full DocumentRight Arrow Icon
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 Intro Macro 8
Background image of page 8
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 Intro Macro 9
Background image of page 9

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

View Full DocumentRight Arrow Icon
Explaining Short-Run Economic Fluctuations Model of Aggregate Demand & Aggregate 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 Downward sloping Intro Macro 10
Background image of page 10
Explaining Short-Run Economic Fluctuations
Background image of page 11

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

View Full DocumentRight Arrow Icon
Image of page 12
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 64

Lec04handout - Aggregate Demand and Aggregate Supply Slide...

This preview shows document pages 1 - 12. Sign up to view the full document.

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