ECO 1102 Chapter Notes - Chapter 14: Potential Output, Aggregate Demand, Aggregate Supply

• School: University of Ottawa
• Department: Economics
• Course: ECO 1102
• Professor: David Gray

Document Summary

Fact 1: economic fluctuations are irregular and unpredictable. Business cycle luctuations in the economy. Economic fluctuations correspond to changes in business conditions. When gdp grows rapidly, business is goods, vice-versa. For monitoring short-run fluctuations, it doesn"t matter which measure of economic activity you choose because their fluctuations will be very similar. Ex) when real gdp falls in a recession, so do personal income, corporate profits, consumer spending, investment spending, industrial production, retail sales, home sales, auto sales, and so on. Macroeconomic variables fluctuate together, but by different amounts. When firms choose to produce a smaller quantity of goods and services, they lay off workers, expanding the pool of unemployed. Unemployment rate never reaches zero, it fluctuates around the natural rate. Describing the patterns that economies experience as they fluctuate over time is easy. Explaining what causes these fluctuations is more difficult. Classical dichotomy separation of variables into real variables and nominal variables.