Macroeconomics

a curve that shows the quantity of goods and services that households, firms, the government, and customers abroad want to buy at each price level

a curve that shows the quantity of goods and services that firms choose to produce and sell at each price level

a severe recession

Ex: timing can't tell until it is over

the model that most economists use to explain short-run fluctuations in economic activity around its long-run trend

the production of goods and services that an economy achieves in the long run when unemployment is at its normal rate

a period of declining real incomes and rising unemployment

a period of falling output and rising prices

From year to year the economic activity fluctuates around its long-run trend

• Over the Long Run (Over Years 1960-1990)
• Real GDP in the Us Grows at an average 3% a year

Short-Run economic fluctuation are often called Business cycles

Changes in the money supply affect nominal but not real variables

• 1. Goes up
• 2.To get funds people sale bonds
• 3.supply of loadable funds drop
• 4. which drives up interest rates
• 5. the increase in interest rates decrease spending on investment goods

Wealth Effect: consumers are wealthier and this stimulate the demand for consumption

Interest Rate: Effect: Lower prices cause interest rates to fall this stimulates the demand for investments. 

International Trade Effect: Lower domestic prices result in a depreciation of the domestic currency which in turn stimulates the demand for net exports

Events that Change the Amount of Consumption:

• 1. Stock Market Boom
• 2. Monetary Policy
• 3. Fiscal Policy

1. Sticky Wage Theory = Nominal wages are slow to adjust to changing economic condition

2. Sticky Price Theory = prices in the short run are sticky (do not change) due to menu cost

• 3. Mis-preception Theory
• changes in overall price level can temporally mislead people to believe that prices change only effect their individual market