ECON 105 Chapter Notes - Chapter 14-15: Aggregate Supply, Aggregate Demand, Price Level
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13 Apr 2016
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ECON 105 Full Course Notes
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Chapter 14: aggregate demand and aggregate supply: recession: a period of declining real incomes and rising unemployment, depression: a severe recession. 3 key facts about economic luctuations: economic fluctuations are irregular and unpredictable. Fluctuations in the economy are often called the business cycle, so they correspond to changes in business conditions. Gdp grows rapidly = business is good. When gdp falls during recessions = businesses have trouble and most irms experience declining sales and dwindling proits: most macroeconomic quantities fluctuate together. For monitoring short-run luctuations, it doesn"t mater what measure of economic activity is used. When real gdp falls in a recession, so do personal income, corporate proits, consumer spending, investment spending, industrial production, retail sales, home sale, auto sales and so on: as output falls, unemployment rises. When irms chose to produce a smaller quantity of goods/services, they lay of workers, expanding the pool of unemployed. Unemployment never approaches 0; instead, it luctuates around its natural rate.