Lecture 8 Slides long - Economics 134 Spring 2012 Christina...

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L ECTURE 8 Review of the AD/IA Framework February 9, 2012 Economics 134 Christina Romer Spring 2012 David Romer
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Announcements Hand in Problem Set 1. Suggested Answers will be posted on Monday.
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I. O VERVIEW OF AD/IA F RAMEWORK
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IS-LM Useful for the Great Depression Key story of the Depression is a collapse in aggregate demand. IS-LM useful for understanding the sources of the decline in demand. Price adjustment was present, but less central.
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Need a Richer Model for the Postwar Era Recessions were related to decisions to tighten monetary policy to reduce inflation. Need a framework that includes inflation adjustment.
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II. A GGREGATE D EMAND
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Where we are headed: AD-IA Y π IA AD π 0 Y 0
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Some Preliminaries MP is the right model of monetary policy for the postwar era. We will treat the U.S. economy as closed.
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Y = E(r), where E = C(Y-T) + I(r) + G Y r IS
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This note was uploaded on 02/28/2012 for the course ECON 134 taught by Professor Davidromer during the Spring '12 term at University of California, Berkeley.

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Lecture 8 Slides long - Economics 134 Spring 2012 Christina...

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