ch20 - AGGREGATE DEMAND AND AGGREGATE DEMAND AND AGGREGATE...

Info iconThis preview shows pages 1–10. Sign up to view the full content.

View Full Document Right Arrow Icon

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

View Full DocumentRight Arrow Icon

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

View Full DocumentRight Arrow Icon

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

View Full DocumentRight Arrow Icon

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

View Full DocumentRight Arrow Icon

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

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

Unformatted text preview: AGGREGATE DEMAND AND AGGREGATE DEMAND AND AGGREGATE SUPPLY AGGREGATE SUPPLY AGGREGATE DEMAND AND AGGREGATE SUPPLY 1 In this chapter, In this chapter, look for the answers to these questions: look for the answers to these questions: What are economic fluctuations? What are their characteristics? How does the model of aggregate demand and aggregate supply explain economic fluctuations? Why does the Aggregate-Demand curve slope downward? What shifts the AD curve? What is the slope of the Aggregate-Supply curve in the short run? In the long run? What shifts the AS curve(s)? 2 AGGREGATE DEMAND AND AGGREGATE SUPPLY 3 Introduction Over the long run, real GDP has been growing about 3% per year on average. In the short run, GDP fluctuates around its trend. Recessions : periods of falling real incomes and rising unemployment Depressions : severe recessions (very rare) Short-run economic fluctuations are often called business cycles . 2,000 4,000 6,000 8,000 10,000 12,000 14,000 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 Three Facts About Economic Fluctuations 4 The shaded bars are recessions The shaded bars are recessions U.S. real GDP, billions of 2000 dollars U.S. real GDP, billions of 2000 dollars FACT 1 : Economic fluctuations are irregular and unpredictable. FACT 1 : Economic fluctuations are irregular and unpredictable. 500 1,000 1,500 2,000 2,500 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 Three Facts About Economic Fluctuations 5 FACT 2 : Most macroeconomic quantities fluctuate together. FACT 2 : Most macroeconomic quantities fluctuate together. Investment spending, billions of 2000 dollars Investment spending, billions of 2000 dollars 2 4 6 8 10 12 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 Three Facts About Economic Fluctuations 6 FACT 3 : As output falls, unemployment rises. FACT 3 : As output falls, unemployment rises. Unemployment rate, percent of labor force Unemployment rate, percent of labor force AGGREGATE DEMAND AND AGGREGATE SUPPLY 7 Introduction , continued Explaining these fluctuations is difficult, and the theory of economic fluctuations is controversial. Some economists use the model of aggregate demand and aggregate supply to study fluctuations. This model differs from the classical economic theories economists use to explain the long run. Other economists use the Real business cycle model to explain fluctuations. We will not study the latter. AGGREGATE DEMAND AND AGGREGATE SUPPLY 8 Classical EconomicsA Recap The previous chapters are based on the ideas of classical economics, especially: The Classical Dichotomy , the separation of variables into two groups: Real quantities, relative prices Nominal measured in terms of money The neutrality of money : Changes in the money supply affect nominal but not real variables. AGGREGATE DEMAND AND AGGREGATE SUPPLY 9 Classical EconomicsA Recap...
View Full Document

Page1 / 58

ch20 - AGGREGATE DEMAND AND AGGREGATE DEMAND AND AGGREGATE...

This preview shows document pages 1 - 10. Sign up to view the full document.

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