Please enable JavaScript.
Coggle requires JavaScript to display documents.
C33 - Coggle Diagram
C33
Three Key Facts
Most Macroeconomic Quantities Fluctuate Together
As Output Falls, Unemployment Rises
Economic Fluctuations Are Irregular and Unpredictable
Short-Run Economic Fluctuations
The Assumptions of Classical Economics
classical dichotomy
monetary neutrality
The Reality of Short-Run Fluctuations
classical theory describes the world in the long run but not in the short run.
how real and nominal variables interact.
The Model of Aggregate Demand and Aggregate Supply
The Aggregate-Demand Curve
Why the Aggregate-Demand Curve Slopes Downward
C: The Wealth Effect
I: The Interest-Rate Effect
NX: The Exchange-Rate Effect
Why the Aggregate-Demand Curve Might Shift
Shifts Arising from Changes in Consumption
Shifts Arising from Changes in Investment
Shifts Arising from Changes in Government Purchases
Shifts Arising from Changes in Net Exports
The Aggregate-Supply Curve
Long Run
Aggregate-Supply Curve Is Vertical in the Long Run
In the long run, an economy’s production of goods and services (its real GDP) depends on its supplies of labor, capital, and natural resources and on the available technology used to turn these factors of production into goods and services.
Why the Long-Run AS Curve Might Shift
Shifts Arising from Changes in Labor
Shifts Arising from Changes in Capital
Shifts Arising from Changes in Natural Resources
Shifts Arising from Changes in Technological Knowledge
AS Depict Long-Run Growth and Inflation
The short-run fluctuations in output and the price level that we will be studying should be viewed as deviations from the long-run trends of output growth and inflation.
Short Run
Why AS Curve Slopes Upward in the Short Run
The Sticky-Price Theory
The Misperceptions Theory
The Sticky-Wage Theory
Why the Short-Run AS Curve Might Shift
An increase in the expected price level reduces the quantity of goods and services supplied and shifts the short-run aggregate-supply curve to the left. A decrease in the expected price level raises the quantity of goods and services supplied and shifts the short- run aggregate-supply curve to the right.
Two Causes of Economic Fluctuations
The Effects of a Shift in AD
In the long run, shifts in aggregate demand affect the overall price level but do not affect output.
Because policymakers influence aggregate demand, they can potentially mitigate the severity of economic fluctuations.
In the short run, shifts in aggregate demand cause fluctuations in the economy’s output of goods and services.
The Effects of a Shift in AS
Shifts in aggregate supply can cause stagflation—a combination of recession (falling output) and inflation (rising prices).
Policymakers who can influence aggregate demand can potentially mitigate the adverse impact on output but only at the cost of exacerbating the problem of inflation.