23115 Lecture Notes - Lecture 10: Real Change, Aggregate Supply, Nominal Interest Rate
Document Summary
Australian real gdp has grown by about 2% per year over the past 50 yrs: key facts about economic fluctuations. Doesn"t always grow as short run fluctuations exist. Recession: period - declining real incomes & increasing unemployment. = -0. 5 x (% change in real gdp 3%) Always a negative relationship between output and unemployment. Aggregate demand and supply: explaining short run-economic fluctuations. In long run, 2 related ideas classical dichotomy &monetary neutrality. Changes in money supply (or nominal interest rate) affect nominal variables but not real variables in the long run. In short run, assumption of monetary neutrality no longer appropriate. Opposed to classical dichoto, real & nominal variables = highly related. *when central bank changes money supply, both affected in st: a short run theory called the model of aggregate demand and supply. Economy"s output: of g/s measured by real gdp (cid:523)real variable(cid:524) Inflation rate: measures by cpi or gdp deflator (nominal variable)
