ECON102 Lecture Notes - Lecture 15: Aggregate Demand, Aggregate Supply, Potential Output
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18 Mar 2016
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Recession: a period of falling incomes and rising unemployment. The variables that we study in this chapter are largely those we have already seen in previous chapters o. Gdp unemployment interest rates exchange rates prices. The model of aggregate demand and aggregate supply is oten used by economists to analyze short-run luctuaions in the economy. Fact 1: economic luctuaions are irregular and unpredictable o. Describing the paterns that economies experience as they luctuate over ime is easy. Explaining what causes these luctuaions is more diicult. The classical view is someimes described by saying, money is a veil. What is important, however, are the real variables and the economic forces that determine them. Most economists believe that classical theory describes the world in the long run but not in the short run. To understand how the economy works in the short run, we need a new model. The new model focuses on how real and nominal variables interact.