CAS EC 102 Study Guide - Midterm Guide: Real Interest Rate, Market Clearing, Real Wages

• School: Boston University
• Department: Economics
• Course: CAS EC 102
• Professor: Neil Watson

Document Summary

In the long run we are all dead. : economic fluctuations, government should intervene, trade-off between short and long-run, inaction in short-run can prolong or worsen recessions, policies effective in short-run might have negative long-run consequences. Net taxes= t: purchase goods and services= g= government spending, business firms, purchase capital goods= planned investment spending = ip. Chapter 11: the short- run macro model: consumption spending, determinants of consumption spending, disposable income= income (tax payments-transfers received, rise in disposable income causes a rise in consumption spending. Thus, any level of output at which aggregate expenditure is less than gdp cannot be the equilibrium gdp: when aggregate expenditure is greater than gdp, output will rise in the future. Increase in the future: ae line intersects 45 line, short-run equilibrium, no change in inventories, no change in output in the future, employment, in the short-run macro model, insufficient spending causes cyclical unemployment.