Chapter 20 PowerPoint

Chapter 20 PowerPoint - Chapter 20. Aggregate Demand and...

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1 CHAPTER 20 AGGREGATE DEMAND AND AGGREGATE SUPPLY Chapter 20. Chapter 20. Aggregate Demand and Aggregate Supply Aggregate Demand and Aggregate Supply In this chapter, we’ll find 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)?
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2 CHAPTER 20 AGGREGATE DEMAND AND AGGREGATE SUPPLY Introduction Over the long run, real GDP grows 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 .
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Three Facts About Economic Fluctuations 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 11,000 1965 1970 1975 1980 1985 1990 1995 2000 2005 $ The shaded bars are recessions U.S. real GDP, billions of 2000 dollars FACT 1 : Economic fluctuations are irregular and unpredictable.
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200 400 600 800 1,000 1,200 1,400 1,600 1,800 1965 1970 1975 1980 1985 1990 1995 2000 2005 $ Three Facts About Economic Fluctuations FACT 2 : Most macroeconomic quantities fluctuate together. Investment spending, billions of 2000 dollars
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0 2 4 6 8 10 12 1965 1970 1975 1980 1985 1990 1995 2000 2005 Three Facts About Economic Fluctuations FACT 3 : As output falls, unemployment rises. Unemployment rate, percent of labor force
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6 CHAPTER 20 AGGREGATE DEMAND AND AGGREGATE SUPPLY Classical Economics—A Recap The previous chapters are based on the ideas of classical economics (long run), especially, the Classical Dichotomy , the separation of variables into two groups: real and nominal the neutrality of money , changes in the money supply affect nominal but not real variables. In the short run, changes in nominal variables (like the money supply or the price level ) can affect real variables (like Y or the u-rate). To study the short run, we use a new model.
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7 CHAPTER 20 AGGREGATE DEMAND AND AGGREGATE SUPPLY The Model of Aggregate Demand and  Aggregate Supply P Y AD SRAS P 1 Y 1 The price level Real GDP, the quantity of output The model determines the eq’m price level and the eq’m level of output (real GDP). “Aggregate Demand” “Short-Run Aggregate Supply”
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CHAPTER 20 AGGREGATE DEMAND AND AGGREGATE SUPPLY The Aggregate-Demand (AD) Curve The AD curve shows the quantity of all g&s demanded in the economy at any given price level. P
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This note was uploaded on 04/07/2008 for the course BSAD ECON 040 011 taught by Professor Boveemora during the Spring '08 term at Vermont.

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Chapter 20 PowerPoint - Chapter 20. Aggregate Demand and...

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