As taxes on investment decrease I And more firms Io Government purchases G 19

As taxes on investment decrease i and more firms io

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As taxes on investment decrease, I^ And more firms, I^ o Government purchases (G; 19% of GDP) Independent of taxes (T) Broader concept: Federal expenditures = G + transfers + interest payments (on the federal debt) o Net Exports (NX; -3% of GDP) Exports – imports If foreign income rises, NX^ Dollar appreciates – NX decreases Dollar depreciates – NX ^ o Shift Summary, each of the following shifts AD right Fiscal policy – G ^, T decreases (C & I), transfer payments ^ (C) Monetary policy – interest rates decrease (C & I) Others: Wealth ^ (C) Population ^ (C)
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Number of firms ^ (NX) Foreign income ^ (NX) Value of the income decreases 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 & notes] o The short run aggregate supply curve (SRAS ) shows how much the economy can produce at different values of the price level (P). o In general, the price firms sell their final goods for (their production; all firms: P) is more flexible than the cost of their inputs. Wages & some other costs are “sticky.” o With aggregate supply, Y is production (output) o With aggregate demand, Y is spending Measure both with real GDP Spending = production in equilibrium o Types of costs to businesses Costs in general (like wages & capital) Energy prices (sudden change: shock) Expected increase in costs due to predicted inflation (i.e. P ) o Shift Summary: ^ K, L, or technological change  SRAS right ^ costs to business (wages, capital, energy)  SRAS left expected inflation SRAS left Be able to explain what static macroeconomic equilibrium is and how it is achieved. [Ch. 13.3 & notes] o P rises or falls until AD = SRAS. One moves along AD & SRAS.
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o Equilibrium is where all spending (AD) equals all production (SRAS). o Equilibrium tells you the values of P & Y. Economy stays in equilibrium until there is a shift in a curve, & then get a new equilibrium. Be able to use AD and SRAS to explain movements in the GDP deflator (P) and real GDP (Y) with one-time events -- i.e. "static analysis." Note that we will not be using LRAS here. [Ch. 13.3 & notes] o The intersection of AD & SRAS tells you P & Y – economy in equilibrium. o Event, 1 curve shifts*, new equilibrium, new P & Y o Thus understand what causes inflation or deflation and expansions or recessions. o AD Shift Summary, each of the following shifts AD right Fiscal policy – G ^, T decreases (C & I), transfer payments ^ (C) Monetary policy – interest rates decrease (C & I) Others: Wealth ^ (C) Population ^ (C) Number of firms ^ (NX) Foreign income ^ (NX) Value of the income decreases o SRAS Shift Summary: ^ K, L, or technological change  SRAS right ^ costs to business (wages, capital, energy)  SRAS left expected inflation SRAS left Be able to explain what dynamic macroeconomic equilibrium is and how it is achieved. [Ch. 13.3 & notes]
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o Dynamic AD & SRAS : how these curves move over the years  usually growth & inflation Be able to use dynamic AD and SRAS to explain how the GDP deflator (P) and real GDP (Y) vary over time -- i.e. "dynamic analysis." Note that we will not be using LRAS here. [Ch. 13.4 & notes] o
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