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Chp. 15 Aggregate Demand and Aggregate Supply

Chp. 15 Aggregate Demand and Aggregate Supply - Chp 15...

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One of the criteria for defining a recession is two consecutive quarters of negative GDP growth. A Recession is a period in which the economy suffers from declining output. This is called "stagflation," combining a stagnant economy with inflation. Although the inflation rate commonly falls during recessions, it is possible for output to decline and the price level to increase. 1. Economic fluctuations are irregular and unpredictable 2. Most macroeconomic variables fluctuate together 3. As real GDP falls, unemployment rises Economic study of fluctuations: Real variables measure quantities or relative prices nominal variables are measured in terms of money. The classical view separates economic variables into two classes: real and nominal. square4 Changes in the money supply have no impact on real variables such as real GDP, the real interest rate, or unemployment. square4 Changes in the money supply, a nominal variable, will only affect other nominal measures, such as the price level or the nominal interest rate.
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