Econ 104 1st Edition Lecture 13 Outline of Last Lecture I Business Cycle II Indicators III International Business Outline of Current Lecture II International Business Cycle III Aggregate Demand Current Lecture I International Aspects of the Business Cycle a Major Industrial countries frequently experience recessions and expansions at the same time b What causes business cycles i Shocks to Aggregate Demand AD 1 Sudden change in wealth household 2 Pessimism or optimism about the future 3 Change in government policy ii Shocks to Aggregate Supply AS 1 Sudden change in the price of oil 2 Inventions or innovations 3 Sudden change in factors of production other than capital or labor a EX drought earthquake II Notations and Definitions a Y output income real GDP national income 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 b Y BAR potential real GDP on PPF c Y Y BAR recession unemployment up national income down d Y Y BAR inflationary boom e SRAS short run aggregate supply i Quantity of real GDP supplied by firms in the short run f LRAS long run aggregate supply i Real GDP supplied in the long run AKA potential g AD aggregate demand i C I G X M h GDP Gap Y Y BAR actual potential i T taxes j G Government Spending k T G Government Budget l T G 0 government budget surplus m T G 0 government budget deficit n HH house hold o ROW rest of the world A shock to AS Oil Price Shock Green LRAS Blue AD Red SRAS III Shocks that cause business cycles are transmitted abroad through a Trade b Financial markets c EXAMPLE financial crisis and Great Recession 07 09 IV Contagion and how shocks are transmitted what is the sequence a Shocks transmitted through trade i E g Great Recession 1 In US loss of wealth pessimism a C down Income down i Imports from ROW down 2 In ROW a US demand for goods in down i Aggregate demand is down b Shocks transmitted through financial markets i E g 1 great recession in US a Stock prices down b HH wealth down i C down and AD down in US 2 ROW a Other country investors hold US stock i US stock prices down 1 HH down in ROW AD and
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