UNC-Chapel Hill ECON 101 - Demand-Side Equilibrium; Multiplier Analysis / Supply Side equilibrium: Fiscal Policy (2 pages)

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Demand-Side Equilibrium; Multiplier Analysis / Supply Side equilibrium: Fiscal Policy



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Demand-Side Equilibrium; Multiplier Analysis / Supply Side equilibrium: Fiscal Policy

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Chapter 27, 28 and brief bit of Chpater 26


Lecture number:
14
Pages:
2
Type:
Lecture Note
School:
University of North Carolina at Chapel Hill
Course:
Econ 101 - Introduction to Economics
Edition:
1

Unformatted text preview:

Econ 101 1st Edition Lectures 14 Demand Side Equilibrium Multiplier Analysis Supply Side equilibrium Fiscal Policy Chapter 27 Aggregate Supply curve shows for each possible price level the quantity of goods and services that all the nation s businesses are willing to produce during a specified period of time holding all other determinants of aggregate quantity supplied constant Productivity is the amount of output produced by a unit of input Inflationary Gap is the amount by which equilibrium real GDP exceeds the fullemployment level of GDP Recessionary Gap is the amount by which the equilibrium level of real GDP falls short of potential GDP Self Correcting mechanism refers to the way money wages react to either a recessionary gap or an inflationary gap Wage changes shift the aggregate supply curve and therefore change equilibrium GDP and the Equilibrium price level Stagflation is inflation that occurs while the economy is growing slowly or having a recession Regarding the supply side why does inflation increase with low economic growth Stagflation is a typical result of big shifts in the aggregate supply curve so supply shocks The text offers the example of OPEC raising oil prices This would generally lead to a decline in the demand for oil but oil was necessary for war invasion etc Also stagflation is common after periods of excessive aggregate demand FYI shift in AS can be from both labor market and supply shocks Chapter 28 These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute Fiscal Policy is the government s plan for spending and taxation It is designed to steer aggregate demand in some desired direction Automatic Stabilizer is a feature of the economy that reduces its sensitivity to shocks such as sharp increases or decreases in spending Are there more examples of stabilizers One example of an automatic stabilizer would be Unemployment Insurance provided by the



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