MACROECONOMICS-CH9
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1. The document discusses the differences between the short run and long run in macroeconomics and introduces the aggregate demand and aggregate supply model. 2. In the short run, prices are sticky and output can deviate from full employment, while in the long run prices are flexible and output depends only on supply. 3. The model shows how shocks like changes in money supply, velocity, or oil prices can affect output and inflation in the short and long run.
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MACROECONOMICS-CH9
- 3. Real GDP Growth in the United States Average growth rate = 3.5%
- 30. Stabilizing output with monetary policy B A The adverse supply shock moves the economy to point B. SRAS 1 Y P AD 1 SRAS 2 Y 2 LRAS
- 31. Stabilizing output with monetary policy B A C But the Fed accommodates the shock by raising agg. demand. results: P is permanently higher, but Y remains at its full-employment level. Y P AD 1 SRAS 2 Y 2 LRAS AD 2
Notes de l'éditeur
- This chapter has two main objectives. First, to motivate the study of business cycles, the subject of the five chapters in Part IV. Second, to introduce the model of aggregate supply and demand, thus providing students with an overall context for what follows. Having this context will allow students to better understand the role played by each of the more detailed pieces of the model (Keynesian Cross, IS-LM, theories of short-run aggregate supply, etc) as students learn them in the following chapters. This chapter is less difficult and a bit shorter than most other chapters in the text, and all of the concepts it introduces are all developed in more detail in the following chapters of Part IV. Therefore, you might consider spending a little less class time on this chapter than on other chapters in the book. This chapter derives the AD curve from the Quantity Theory of Money, a simple theory that students learned in an earlier chapter; hence, this provides a simple and quick way of deriving an AD curve from theory. As a theory of aggregate demand, though, the Quantity Theory is very incomplete - it omits fiscal policy, interest rates, and net exports, among other things. But, this chapter merely aims to introduce the AD curve and the AD/AS model, and makes clear that the following three chapters will develop the theory of aggregate demand in greater detail. Some professors, when teaching this chapter, merely present the downward-sloping AD curve rather than deriving it from the Quantity Theory. Although this is more ad hoc or “hand-waving” than deriving the AD curve from a theory, these professors offer the following arguments: First, they note that this saves time. Second, they believe that deriving the AD curve from the Quantity Theory requires students to learn things that they will have to “un-learn” in the following three chapters (such as the intuition for the AD curve’s negative slope). Third, most students are familiar with the AD curve already, having seen it in a principles of economics course, and therefore will accept it without seeing it derived from a theory. (Indeed, deriving the AD curve from the Quantity Theory may seem to them contrary to what they learned in their principles course). I think good arguments can be made for either position, and encourage you to do whatever you find most appropriate, effective, and comfortable for you and your students.