UW-Madison ECON 102 - Chapter 15 continued (3 pages)

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Chapter 15 continued

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Understanding the Economics of the Adjustment Process, Why changes in wages and prices restore the economy to full employment, Crowding Out In the Long Run, Say’s Law, Review of Fiscal Policy


Lecture number:
24
Pages:
3
Type:
Lecture Note
School:
University of Wisconsin, Madison
Course:
Econ 102 - Principles of Macroeconomics
Edition:
1
Documents in this Packet

Unformatted text preview:

Econ 102 1st Edition Lecture 24 Outline of Last Lecture I Exam 3 II Chapter 15 Outline of Current Lecture I Chapter 15 cont II Review Fiscal Policy Current Lecture I Chapter 15 cont a Tips i Look at the graphs on Learn UW ii Eudey also posted an audio clip explaining it b 15 3 Understanding the Economics of the Adjustment Process i Chapter 15 all Keynesian ii Figure 15 4 very important 1 In summary graphs lands us back where we have started iii Why changes in wages and prices restore the economy to full employment 1 changes in wages and prices change the demand for money 2 This changes the interest rates which then affect aggregate demand for goods and services and ultimately GDP iv Long Run Neutrality of Money 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 1 Monetary Policy in the Short Run and the Long Run 2 Study graphs in power points 3 if it works great may be like pushing on a string v Crowding Out In the Long Run 1 Keynesians dont worry about the pushing on a string they believe it will work vi Application 3 1 Increasing Health Care Expenditures 2 were are spending a lot more on surgeries appointments etc 3 The opportunity cost is saving a less capital deepening b shifting the components of Aggregate Demand c Spending more on health care and less on other things vii Say s Law 1 Classical Beliefs a Aggregate demand never just shifts on its own i It changes because real wages change and our ability to spend has changed first b supply creates its own demand not the other way around c Supply falls demand will fall II Review Fiscal Policy a Fiscal Policy Legacies from the Great Recession i a lot of spending unemployment bank rescues welfare rescued AIG and some other firms ii continued the temporary Bush tax cuts of 2001 iii left with an enormous debt relative to GDP raise taxes back to pre Bush levels and or cut spending Where Social Security Education



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