3.7. To be able to use Okun's Law to explain the relationship between unemployment and real GDP. (notes) Okun’s Law: The connection between Real GDP (Y) and the unemployment rate(u)
Idea: -labor force grows as population grows -productivity (Y/L) increases over the years - Some economic growth is needed to keep the unemployment rate constant over the years Formula: % change Y= 3- 2 change in u (unemployment rate) 3.8. To be able to explain basic facts about the business cycle, including how real GDP and the unemployment rate behave during the business cycle, and how the 2007-2009 recession (sometimes called the "Great Recession") and its aftermath compares to other downturns. Finally, be able to explain how the Great Depression was much worse than any downturn since it. (Ch. 10.3, notes, and Lecture Replacement Videos) Business Cycle: expansions + recessions Recession: a significant decline in economic activity 3.9. To be able to explain the main causes of recessions. (notes) -Any abrupt external shock - Oil/energy, financial, fiscal policy shock, monetary shock Recessions post war: energy and monetary shock SECTION 4: Explaining the Economy's Movements in the Short Run 4.1. Be able to explain what aggregate demand and supply describe about the economy. (notes) Aggregate Demand: All purchases -All spending in the economy for different values of the price level components: AD= C+I+G+NX Aggregate Supply: All production 4.2. Be able to explain the components of aggregate demand (AD), what influences them, and how the curve behaves (move along it and shifts). (Ch. 13.1 and notes) AD curve shifting to the right :
Interest rates decrease Population increase G increase Taxes decrease Increase in foreign income Dollar fell in value -Prices increasing or decreasing moves along the curve 4.3. Be able to explain the influences on short run aggregate supply (SRAS), what influences it, and how the curve behaves (move along it & shifts). (Ch. 13.2 and notes) SRAS curve shifting to the right : Capital, labor and technology all increase Cost of business decreases Minimum wage decreases Oil prices fall Expected inflation (SHIFT LEFT) Prices rising or falling - move ALONG the curve 4.4. Be able to explain what static macroeconomic equilibrium is and how it is achieved. (Ch. 13.3 and notes) Equilibrium: where all spending (AD) and all production (SRAS) Where AD and SRAS meet. It gives us the values of P and Y for the economy. The economy always wants to be in equilibrium The economy stays in equilibrium until there is a shift in the curves *For the rest of this section I would look at notes of all of the static and dynamic graphs
SECTION 5: Fiscal and Monetary Policy 5.1. Be able to explain what financial assets, securities, stocks, and bonds, and mutual funds are. (notes) ASSETS- OWN LIABILITY- OWE Financial Assets: a legal agreement to make or receive future payments Securities: A financial asset that can be sold by the public (Stocks and Bonds) Stocks: A security sold by large firms with a higher return but are more risky Bonds:
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- Fall '10