2 the multiplier effect of a change in government

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2.The multiplier effect of a change in government spending or taxes on aggregate output iszero.The Simple “Keynesian” Aggregate Supply Curve (p104—graphs, notes)1.The output of the economy cannot exceedthe maximum output of Yf.2.Inflationary gap:difference between planned aggregate expenditure and aggregate output atfull capacityInflation: an increase in the overall price levelSustained inflation: overall price level continues to rise over some fairly long period of time.Causes of Inflation:1.Demand-pull inflation (Better):inflation initiated by an increase in AD2.Cost-push or supply-sideinflation:inflation caused by an increase in costs (AS curve shift left)
Yue ZhangNote: if technology increases, AS increase, P will decrease and Y will increase.(Good)Stagflation:output is falling with the increasing in price level due to increase in costs. (AS left)Solution for cost shock inflation: increase AD curve to increase output, but the price will go up more.An increase in inflationary expectations shift the AS curve to the left.Hyperinflation:a period of very rapid increases in the price level.Money and Inflation: if +G with Ms Constant, shift AD to the right (fiscal policy)+P+Md+IR-Planned InvestmentY decreaseThis leads toan increase in the IRandcrowding out of planned investment.If the Fed tries to prevent crowding out, it will+ Ms and AD shifts to the right fartherand farther.This result is asustained inflation, perhapshyperinflation.Way tostimulate economy is through lower interest rates to increase plant and equipmentinvestment. When IR isnear zero, this option is not available. Then stimulus must come primarily fromfiscal policy.Chapter 14: The Labor Market in the MacroeconomyUnemployment rate: the # of people unemployed/ the total # of people in the labor forceCyclical unemployment: increase in unemployment that occurs duringrecessions and depressions.(Only for business cycle up and down—short-run)Frictional unemployment: the portion of unemployment that is due to thenormal working of the labormarket; used to denote short-run/skill matching problems. E.g. graduate, wait for a job.Structural unemployment: the portion of unemployment that is due tochanges in the structure of theeconomythat result in a significant loss of jobs in certain industries. (Whole industry, longer)Natural unemployment=frictional unemployment + structural unemploymentLabor force: full-time workers + part-time workers + looking for jobsPart-time workers are neither in the employed nor unemployed.Classic View of the Labor Market:Classical economists: the quantity of labor demanded and supplied is brought intoequilibrium by risingand falling wage rates.No persistent unemployment above the frictional and structural amount.
Yue ZhangLabor supply curve: the amount of labor that households want to supply at each given wage rate.

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Term
Spring
Professor
Petry
Tags
Monetary Policy, Yue Zhang

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