Chapter 9 Notes Here are the notes taken in Joseph De Juan's class for Chapter 9 for those who didn't attend.
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In this chapter, you will learn:
-Facts about the business cycle
-How the short run differs from the long run
-An introduction to aggregate demand
-An introduction to aggregate supply in the short run and long run
-How the model of aggregate demand and aggregate supply can be used to analyze
the short run and long run effects of “shocks”
Facts about the business cycle
-GDP growth averages 3-3.5% per year over the long run with large fluctuations in the
-Consumption and investment fluctuate with GDP, but consumption tends to be less
volatile and investment more volatile with GDP.
-Unemployment rises during recessions and falls during expansions.
-Okun’s Law: The negative relationship between GDP and cyclical unemployment.
Change in the unemployment rate = -0.5 (% change in real GDP - 4)
Index of Leading Economic Indicators
-Aims to forecast changes in economic activity 6-9 months into the future.
-Used in planning by businesses and government, despite not being a perfect predictor.
-Components of the LEI Index:
-New building permits issued
-Index of stock prices
-Money supply data
-Yield spread (long term minus short term) on Treasuries
-Index of consumer confidence
Time horizons in macroeconomics
-Prices are flexible, respond to changes in supply or demand.
-Many prices are “sticky” at some predetermined level.
-The economy behaves much differently when prices are sticky.
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