ECN 203 1nd Edition Lecture 22Outline of Last Lecture II. Building the Macro Model a. P, Y, GCEIII. Macro Long Run IV. Short Run Aggregate Supply (AS)V. Aggregate Demand (AD)a. Functional Form VI. Components of AEOutline of Current Lecture VII. Examples of ADVIII. Aggregate SupplyCurrent LectureLecture 3/18/15- AD Exampleso When AE rises of ralls it moves AD, and changes in AD move the economy. In the Great Depression AD collapsed. Real GDP fell dramatically and unemployment increased and there was deflation. World War 2 caused another dramatic shift in AD- The gov’t starting spending a lot expanding AD, causing real GDP to grow, unemployment to decrease, and inflation. - Aggregate Supply o Contractionary vs. Stimulative – which is good for the economy? It depends on where the economy is relative to the natural rate and the shape ofAS LAS = vertical at Y f and represents the condition of the economy in the Long Run. Independent of the price level. The Macro condition in the Long Run is GCE – which is determined by the size of society’s endowment. 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.o AS Shift Variables AS traces inflation which is created by increasing production of real GDP, Y. AS reflects the cost structure of the Marco economy. Rising factor prices cause the cost structure shifts AS up because the Price Level, P, at every level of Y rises to cover this higher cost structure.o LAS shifts right with increases in society’s endowment… growth in the economy. o AS shifts up and down with changes in factor prices. o AD shifts right or left with changes in
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