Macroeconomics: Chapter 13

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Economic growth in US over last 50 years
averaged 3.3%
Aggregate demand curve
All the combinations of inflation and real growth that give a specified rate of spending growth
M + V =
P(inflation) + Yr (real growth, GDP)
Shifts in AD caused by
change in growth rate of the money supply and change in growth rate of the velocity of money
Solow growth curve
a vertical line at the solow growth rate
Shifts in SGC caused by
real shocks
Intersection of AD and SGC curve equal
pi (inflation rate) and real growth real growth rate
Real shock
Any shock that changes the potential growth rate of economy ex: weather, oil prices, war, strikes
Solow growth rate
The growth rate the economy is capable of given its factors of production
Short-run aggregate supply curve
relationship between inflation and real growth when prices are sticky (none with prices are flexible)
SRAS shifts
high inflation shifts curve left, lower to the right
Sticky wages
workers like to work overtime and earn more wages, but if the demand increases because of something like printing money, when they go to spend their money, they find that prices have increased, they are not willing to work extra and now demand higher wages
Sticky prices, menu costs
the costs of changing your prices, ex: costs like new printing and costs like customers leaving after a price increase; uncertainty around inflation also reduces likelihood of changing prices
Increase (decrease) in M or V shifts AD curve
to the right (left)
V shifts are from
changes in the components of GDP, C (consumption), I (investments), G (government spending), NX (net exports)
V changes are usually
temporary
AD shocks and the Great Depression
primarily many negative shocks to AD that caused the Great Depression, ex: decrease in M to counter run up in stock prices, fall in stock prices caused a fall in C, banks started failing so people lost more wealth and C fell again, fewer banks meant less I, federal reserve contracted the money supply so M fell even more, Smoot-Hawley Tariff reduced trade and production, dust bowl hurt farming
Categories: Macroeconomics