oac economic seminar chapter #12 economic fluctuations
TRANSCRIPT
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OAC Economic Seminar
CHAPTER #12 Economic Fluctuations
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Aggregate Demand The relationship between the
general price level & total spending in the economy
4 components: Consumption, Investment, Government Purchases, Net Exports Groups response this spending: Households, Businesses, Governments, Foreigners
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Real Expenditures
Total spending in an economy, adjusted for changes in the general price level
It is calculated using the GDP deflator
Price Level influences real expenditures
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The Aggregate Demand Curve
The relationship between the general price level and total spending in the economy expressed on a graph
Price variable is placed on the vertical axis
Output variable is placed on the horizontal axis
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Aggregate Demand
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Wealth
Price level ( or ) financial assets (same)
Price level ( or ) real values ( or )
Real Value of financial assets =norminal value of financial assets / price level
Wealth effect–wealth consumption
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Foreign Trade
Foreign trade effect – with changes in the price level, expenditures on imports change in the same direction, while expenditures on exports change in the opposite direction
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Changes in Aggregate Demand
Aggregate demand factors – variables that cause changes in total expenditures at all price levels
It shifts the curve either to right or left
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Changes in Aggregate Demand
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4 components - Consumption
Disposable Income
Wealth
Consumer Expectations Interest Rates
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Investment
Real rate of return – the constant dollar extra profit provided by the project each year stated as a % of the project’s initial cost
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Investment Demand
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Investment (cont’d)
Investment Demand – relationship b/w interest rates & investment
Interest Rates Business Expectations Production Costs
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Government Purchases
Government purchases ( or ) causes aggregate demand ( or )
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Net Exports
Foreign Incomes Exchange Rates – the value of
one nation’s currency in terms of another currency
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Aggregate Supply
The relationship between the general price level and real output produced in the economy.
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Aggregate Supply
Aggregate Supply schedule and aggregat supply curve are the aggregate supply expressed on a table and graph.
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Factors that influence Aggregate Supply
1. Input Prices
2. Resource Supplies
3. Productivity
4. Government Policies
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Input Prices A decrease in input proces due to a fall in
wages and raw material prices. Aggregate supply increases, then the curve shifts to the right, and potential output increases. It is called a short run increase in aggregate
A increase in input proces due to a rise in wages and raw material prices. Aggregate supply decreases, then the curve shifts to the left, and potential output decreases. It is called a short run decrease in aggregate
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A Shot-Run Change in Aggregate Supply
An example of the short run increase in aggregate supply
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Resource Supplies For the long term, there can be supplies
increases due to the increased in labour supply, capital stock, land natural resources and entrepreneurship. It is called a long run increase in aggregate supply
Also, they can be reversed, everything has devreased so there will be a decreased in supplies of evonomic resourves. It is called a long run devrease in aggregate supply.
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A Long-Run Change in Aggregate Supply
An example of long run increase in aggregate supply
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Productivity Labout Productivity
= Real output/ total hours worked Increases in productivity are due to
technological progress. A technological innovation raises productivity when there is same amount of resources can produce more real output. It causes the long run increased in aggregate supply.
In the opposite side, if a technological decline reduces the real output with the same resources, then it will have a long run decrease in aggregate supply
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Government Policies When there is a lower taxes and less
government regulation changed by the government, it will have a increase in aggregate supply.
When there is a higher taxes and more government regulation changed by the government, the companies will have decreases in their aggregate supply.
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Crystal Ball Economics Statistical Models are composed of
equations that summarize macroeconomic behaviour in numbrical terms.
Composite Index is calculated monthly, and is a weighted average of 10 leading indivators.leading indicators show movement the precedes changes in the GDP, lagging indicators show mvement that follows changes in the GDP
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GDP and Index of Leading Indicators (third quarter 1989 =100)