Lecture 14 Introduction to Determinants of GDP

Lecture 14 Introduction to Determinants of GDP - What...

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What Determines Real GDP/NNP? Important Note: From now on, we will assume that there is no Depreciation in the economy and NFP=0. Therefore, I B =I N and GDP=NNP≡GNP. 1) “Classical” Approach 2) Keynesian Approach - Vertical AS (Aggregate Supply) - Horizontal AS - AS determines GDP - AS determines GDP
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Why is there a disagreement about the shape of the AS curve? Consider an economy where there is no technological progress and capital is fixed. Then, a level of employment, L is going to correspond to a particular level of GDP, Y . Suppose that the aggregate price in the economy decreases .
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Why is there a disagreement about the shape of the AS curve? Therefore, AS is going to have a different shape depending on whether wages are flexible of rigid . Keynes argues: Nominal wage rigidity. Classical: No wage rigidity.
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Aggregate Demand There is no dispute among the approaches regarding the shape of the AD curve. Why Is the Aggregate Demand Curve Downward Sloping? GDP has four components: consumption ( C ), investment ( I ), government purchases ( G ), and net exports ( NX ). If we let Y stand for GDP, we can write the following: Y = C + I + G + NX The Wealth Effect:
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Lecture 14 Introduction to Determinants of GDP - What...

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