ECON 305 Lecture Notes - Lecture 1: Aggregate Demand, Aggregate Supply, Relative Price
13 Dec 2018
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Document Summary
Introduction and chapter 1: three major concerns of macroeconomics, growth, unemployment, and inflation, tools macroeconomists use, some important concepts in macroeconomic analysis, tools economist use: economic models, are simplified versions of a more complex reality. Its assumptions: which variables are endogenous, which are exogenous, the questions it can help us understand, those it cannot, prices: flexible vs. sticky, market clearing: an assumption that prices are flexible, adjust to equate supply and demand. In the short run, many prices are sticky adjust sluggishly in response to changes in supply or demand. For example: many labor contracts fix the nominal wage for a year or longer, many magazine publishers change prices only once every 3-4 years, the economy"s behavior depends partly on whether prices are sticky or flexible: If prices sticky (short run), demand may not equal supply, which explains: unemployment (excess supply of labor, why firms cannot always sell all the goods they produce.
