Ch 15 macro economics
Terms
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- recession
- a period of declining real incomes and rising unemployment
- 3 facts about Economic Fluctuations
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1)they are irregular and unpredictable
2) most macroeconomic quantities fluctuate together
3) as output falls, Unemployment rises - classical dichotomy of money
- the separation of variables real variables and nominal variables
- model of aggregate D and S
- the modle that most economists use to explain short run fluctuations in economic activity around its long run trend
- aggregate supply curve
- a curve that shows the quanity of G and S that firms choose to produce and sell at each price level
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a decrease in Price level makes consumers wealthier, which in turn ecourages them to spend more
-the increase in consumer spending means larger Qd of G & S
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a decrease in P implys a decrease in interest rate which encourages spending to increase on investment goods
-this increases Qd of G&S
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- why does the AD curve slope downward
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1)health effect
2)interest rate effect
3)exchange rate effect - Why would AD curve shift?
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consuption
investment
govt purchases
net exports -
in the long run, AS curve is vertical where as in the short run it is upward sloping
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in the long run, real GDP depends on supply of labor capital, natural resources and available technology used to turn these factors of production into G&S
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- relative prices
- prices of those G&S compared to other prices in the economy
- natural rate of output
- shows what economy produces when unemployment is at natural rate
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when Pincreases, savings become less valuable,
ppl are less wealthy and spend less on consumption
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- why does short run AS curve slope upward?
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*1) sticky wage theory
2)sticky price theory
3)misperceptions theory - why might AS curve shift
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labor
capital
natural resourves
technology
expected price level -
in short run, shifts in AD cause fluctuations in economy's output of G&S
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in long run, shifts in AD effect overall P but not GDP
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- stagflation
- a period of recession with increasing prices
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shifts in AS can cause stagflation
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policy makers who can influence AS cant effect both effects stumultaneously
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- cartel
- group of sellers that attempt to thwart competition and reduce production to increase prices
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increas in P causes real wages to decrease, thus firms hire more and produce more goods, increasing Y
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