Lecture15 - Announcements: Readings Today Mankiw, ch. 9....

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Announcements: Readings Today Mankiw, ch. 9. Intro to Economic Fluctuations. AS-AD model Next week Mankiw, ch. 10-12. IS-LM model Practice midterm posted today (not to be handed in); answers posted next Thursday From full employment to economic fluctuations •S o f a r , Y fixed at full-employment level (ch 3) • Full-employment level of Y trending upward because of growth (chs 7-8) • Economics fluctuations: Deviations from trends (chs 9-12) • Recessions, booms
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Deviations from trend in percent Cycle = GDP – Trend (in logs)
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Unemployment • Alternative cyclical indicator Aggregate Demand and Short-Run Ecomomics Fluctuations Long run: Real economy - Output determined by supply - Full employment - Capital adjusts to steady-state value Long run: Monetary economy (ch 4) - Output independent of money/prices - Prices and money move proportionately - Prices jump in response to real shocks “Classical dichotomy”
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Aggregate Demand and Short-Run Economic Fluctuations Short run: Real economy - Output determined by demand -
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Lecture15 - Announcements: Readings Today Mankiw, ch. 9....

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