Short-run fluctuations in output and employment
business cycle
A recession is usually defined by a period in which there are
TWO consecutive declines in real GDP.
_____ is the first place to start when analyzing the business cycle, since it is the largest gauge of economic conditions.
GDP
In recessions, both ______&______ DECLINE; however, _____ is even more susceptible to decline.
consumption and investment
investment
4 indicators that determine the health of the economy
unemployment
output
investment
consumption
Okun’s Law
the negative relationship between unemployment and GDP
Percentage Change in Real GDP =
- If the unemployment rate remains the same, real GDP _____
- For every percentage point the unemployment rate rises, real GDP growth typically _______
3.5% - 2 x the Change in the Unemployment Rate
grows by 3.5%
falls by 2%
Index of Leading Economic Indicators
(3)
- Average workweek of production workers in manufacturing
- verndor performance
- New building permits issued
Interest rate saving and loans
high IR = ______ money
low IR = _______money
less money
more money
Classical macroeconomic theory applies to the long run but NOT to the short run–WHY?
-because prices behave differently in the short run than in the long run, economic policies have different ….
- In the long run, prices r flexible & can respond to changes in S&D.
- In the short run prices r sticky.
- effects over different time horizons.
classical dichotomy-
-it suggests that changes in the money ______ do NOT influence ______
-this irrelevance of money for real variables is called ________
separation of the determinants of real and nominal variables
supply ; real variables
monetary neutrality (d beleif that a change in MS will affect d economy in the LR)
shows how the aggregate price level and quantity of aggregate output are determined in the short run.
- provides a way to contrast how the economy behaves in the LR & SR
The model of AS & AD
lowest level of unemployment
- NEVER ZERO
full employment or natrual rate of employment
