ECN 204 Lecture Notes - Aggregate Demand, Aggregate Supply, Classical Dichotomy

133 views7 pages

Document Summary

Recession: falling incomes and rising unemployment when normal growth does not occur, more sever is called a depression. Fact 1: economic fluctuations are irregular and unpredictable. Fluctuations are often called business cycles; economic fluctuations correspond to changes in business conditions. When real gdp grows rapidly, business is good. When real gdp falls during recessions, businesses have trouble. Most variables that measure some type of income, spending or production fluctuate closely together but by different amounts. When real gdp falls in a recession, so do personal income, corporate profits, consumer spending, investment spending, industrial production, and so on (most decline is in investments) Changes in the economy"s output of goods and services are strong correlated with changes in the economy"s utilization of its labor force. When real gdp declines, the rate of unemployment rises. Most economists use the model of aggregate demand and aggregate supply to study fluctuations.