LecNote04

LecNote04 - Aggregate Demand and Aggregate Supply Slide#04...

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Aggregate Demand and Aggregate Supply Slide #04 Intro Macro 1
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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
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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
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A look at short-run economic fluctuations (a) 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. Intro Macro 4
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A look at short-run economic fluctuations (b) 1 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. Intro Macro 5
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A look at short-run economic fluctuations (c) 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. Intro Macro 6
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Note For simplicity, we assume CLOSED ECONOMY that is, NX=0 Ignore the exchange rate effect Intro Macro 7
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Explaining Short-Run Economic Fluctuations 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 8
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Explaining Short-Run Economic Fluctuations Aggregate-supply curve Shows the quantity of goods and services That firms choose to produce and sell At each price level Upward sloping Intro Macro 9
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Price Level Quantity of Output Equilibrium price level Aggregate supply Aggregate demand Equilibrium output Economists use the model of aggregate demand and aggregate supply to analyze economic fluctuations. On the vertical axis is the overall level of prices. On the horizontal axis is the economy’s total output of goods and services. Output and the price level adjust to the point at which the aggregate-supply and aggregate-demand curves intersect. Intro Macro
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This document was uploaded on 10/28/2011 for the course 220 103 at Rutgers.

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LecNote04 - Aggregate Demand and Aggregate Supply Slide#04...

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