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This 0 page Study Guide was uploaded by Sarah Pugh on Wednesday November 4, 2015. The Study Guide belongs to ECON 2030 - 2 at Auburn University taught by Liliana Volodymyrivna Stern in Summer 2015. Since its upload, it has received 76 views. For similar materials see Macroeconomics in Economcs at Auburn University.
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Date Created: 11/04/15
Economic Equilibrium AEY Short Run Equilibrium Where 45 degree line and AE intersect Long Run Equilibrium YY Recession greater than 6 months YltY Boom YgtY Shifting AE line Down consumers pessimistic Govt spending decreases Investment goes down Exports go down NX goes down so AE goes down Uplnvestment increases exports increase govt spending increases Multiplier Affect larger changes in real GDP 11mpc mpcslope of consumption function C5009 x Y so change in c change in y AECIGNX New equilibrium level of real GDP using multiplier formula Find mpc change in y Find multiplier 11mpc Use change in y equation change in y multiplier X change in NX Then Y2 Y old change in Y change in c Find the new equilibrium using the multiplier formula 1 Determine variables 2 In equilibrium Aeold Yold 3 AE old equation C I G NX 4 Y new Yold change in Y 5 Multiplier 11mpc 6 Change in y multiplier X change in NX Y new Yold change in Y OR AEnewClGnewNX AEnew plug in variables with new terms 3 Then plug into consumption function 4 AEnew number found slopeYnew 5 Solve for Y other variables should already be found NHN Aggregate demand Changes in P cause movements along Demand line 1 Wealth effect price level increase so consumption decreaseAD decrease 2 Interest rate price increase so more money taken out of banks so interest rates increase so consumption decreases so AD decreases 3 International Trade effect price increases in USA exports decrease so NX decreases so AD decreases Aggregate demand 1 Change in govt policy monetary Changes in anything else that shift or scal demand line 2 Change in expectations of households or rms 3 Change in foreign variables importexports Aggregate Supply Upward sloping changes in P Short run normal supply line 1 Contracts make some wages and Long runpotential vertical line not prices sticlq depending on P but is dependent on 2 Firms are slow to adjust wages KA 3 Menu costs make prices sticlq SRAS curve tells us about the relationship between the price level and the quantity of real GDP supplied holding everything else constant Aggregate Supply 1 Increase in capital stock and Changes in anything else that shift labor force supply 2 Technology change 3 Expected price level change 4 Adjust of workers 5 Unexpected change in prices of natural resources Long run Equilibrium LRASSRASAD Example of shifts and selfadjusting Pt A Increase in foreign demand on exports Y1y equilibrium E increases NX increases AD increases Pt B Short run equilibrium bus cycle boom Y2gtY1 Labor Markets UR decreases Wages increases Pro t decreases AS decreases Pt C new LR equilibrium Y3Y P3gtP2gtP1 Commodity money Goods that have other value salt gold Fiat money No intrinsic value dollar bill Barter vs money Barter not ef cient unless hype n a on Money used in exchange Function of Money Medium of exchange selers accept it Store of value don39t have to use right away Unit of account money terms are equal 5 criteria of money Acceptable Valuable Standardized quality Durable divisible U39lIgtLJMJII I Measurement of Money Narrow M1 currency checkable deposits travelers check Broad M2 M1 saving accts small time deposits lt100000 Assets RRR ER RR rr X total deposits RBank reserves deposits in bank vault RR Required reserves amount a bank is legally required to hold vault cash rr Required Reserve Ratio minimum fraction of deposits they must keep in reserve 10 ER excess reserve amount of reserves a bank holds over and above legal requirement fed deposits Money multiplier 1rr Fed purchases sells bonds Change in M m X change in R M 1reserve ratio Selling negative change in M Velocity of Money NGDP P X RGDP MxVPxY Y real GDP P aggregate price level Growth form for velocity Change in M change in V change in P change in Y
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