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Chapter 14 Re

Chapter 14 Re - Chapter 14 Re-cap Economic fluctuations the...

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Chapter 14 Re-cap Economic fluctuations – the performance of the economy that we observe Recession – an economic fluctuation characterized by falling real income or output and rising unemployment Facts about economic fluctuations 1. We do not know with certainty 1..a)When fluctuation will occur 1..b)How long it will last, 1..c)How severe it will be 2. Most macroeconomic variables fluctuate together. The exceptions are prices and inflation. 3. Output and unemployment are inversely related. Explaining Short-Run Economic Fluctuations In the long run , economic outcomes are assumed to be stable . 1. Real GDP (Y) is fixed by factor supplies and technology 2. The real interest rate balances supply and demand for loanable funds in the financial market. 3. 4. Unempolyment is at or near its long-run natural rate. In the short run , year-to-year, monetary and fiscal policies can affect employment, prices and output. So, the short-run behavior of the economy is of some importance. 1. Output responds to changes in aggregate demand. 2. The interest rate balances the supply and demand for money. 3. The price level is assumed to be “sticky”. (not-moving) 4. Unemployment varies inversely with output.
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Slide (13 - 19 Aggregate demand (AD) – shows different quantities of output which all spending groups: Consumers Firms Government People outside of Canada wish to purchase at different price levels. Y = C + I + G + NX
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Chapter 14 Re - Chapter 14 Re-cap Economic fluctuations the...

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