ECON 103 Lecture Notes - Lecture 6: Stock Market Crash, Menu Cost, Microeconomics

• School: University of Illinois
• Department: Economics
• Course: ECON 103
• Professor: Mc Dermott Eric

Document Summary

Some firms slow to adjust price levels of goods. Costs associated with changing price of good sold. The idea is that some firms set their prices in advance and don"t change immediately. If money supply expands = firms will sell more, leads to hiring. If money supply contracts = produce less, cut back on workers. We observe an increase in output as well as higher short run equilibrium price level. Result of improved job prospects - stable future income. Also result in change of belief in wealth. Housing goes up, consumers have more wealth. Increased pessimism (shift left, lower price levels) Result of worsened job prospects - concern more likely to lose job. Result of change in belief in wealth. Stock market crash lead to decreased consumer confidence and. Examples of good and bad shocks to economy & examples decreased spending. Lead to higher prices and greater output. Higher prices likely makes workers demand higher wages.