EC140 Lecture Notes - Lecture 7: Diminishing Returns, Supreme Headquarters Allied Powers Europe, Final Good
28 views5 pages
meghan78 and 39778 others unlocked
21
EC140 Full Course Notes
Verified Note
21 documents
Document Summary
Lecture 7 output & prices in the short run, january 29th, 2018. The money that people hold can buy fewer goods. Similarly: a fall in prices: value of money held goes up, consumption therefore rise. Desired income goes up that means that there is going to be more production which means the prices will go up. If prices go up, people have assets and can"t buy as much as before you feel poorer (when you feel poorer your consumption falls) No assumption of straight lines aggregate supply and demand are not straight once we add prices. Aggregate expenditure from any level of income how much do ppl want to spend. If prices goes up, consumption falls, expenditure falls, gov"t spending falls aggregate expenditure falls thus gdp falls. Deriving the aggregate demand curve: start with p0 and ae0, downward sloping aggregate demand (ad) curve. Increase prices to p1 increase again to p2.