Explain economic fluctuations and how shifts in either aggregate demand or aggregate supply can cause expansions and recessions using the model of aggregate demand and aggregate supply.
Question 1- Three Key Facts
Identify the three key facts about short-run economic fluctuations and how the economy in the short run differs from the economy in the long run. Provide real-world examples of those “key facts.”
According to Mankiw (2015), those three key facts include:
Economic Fluctuations Are Irregular and Unpredictable.
Most Economic Quantities Fluctuate Together.
As Output Falls, Unemployment Rises. (pp. 316-318)
For example, according to the Bureau of Labor Statistics (2016), from December 2007 to 2008 the unemployment rate rose from 5.0 to 7.3, and, according to the Bureau of Economic Analysis (2016), GDP fell 0.3 percent.
Class – How does the economy in the short run differ from the economy in the long run? What real-world examples do you have of the three key facts posted in the above list?
Question 2- Shifts in AS and AD
Explain economic fluctuations and how shifts in either aggregate demand or aggregate supply can cause expansions and recessions using the model of aggregate demand and aggregate supply.
In the two threads, I have posted in response to this message, let’s consider the factors that cause shifts in aggregate supply and aggregate demand . . .
Question 3- Why is unemployment a lagging indicator?
Patricia’s comments were related to the assertion by Mankiw that “as output falls, unemployment rises” (Mankiw, 2015, p. 318). The relationship between output (GDP) and the unemployment rate is clearly shown in the graphs in Chapter 20. In addition, if you take a close look at the relationship between output and unemployment, you will see that unemployment is a lagging economic indicator.
Class — What is the definition of a lagging economic indicator? Why is unemployment a lagging indicator? What behavior explains why unemployment a lagging indicator?
Question 4 – Shifts in Aggregate Supply
Hello, Everyone – According to our course text, Mankiw (2015), factors that might increase or decrease GDP from the supply side (aggregate supply) include changes in:
1) Labor.
2) Capital.
3) Natural Resources.
4) Technology (productivity).
5) Expected Price Level. (p. 336)
Please note: A change not listed is changes in taxes and subsidies. Also note: The availability of imported resources (labor, capital, and natural resources such as oil) affects the short-run aggregate demand curve.
For example, during the time that I was Finance Chair of the Adirondack Community Church in Lake Placid, we experienced increases in input prices including the cost of oil (for heating) and of health insurance for our employees. Consequently, we reduced our staff and some of our programs. Increases in the cost of producing goods and services would shift the SAS curve to the left and reduce GDP.
Class – In your Week 4 assignment, how will you explain how shifts in aggregate supply can cause economic expansions and recessions? What real-world examples do you have?
Question 5 – Shifts in Aggregate Demand
Hello, Everyone — GDP includes four components of spending including:
1) Consumption (consumer spending).
2) Investment (includes nonresidential structures/buildings, residential structures/buildings, and equipment
and software).
3) Government (includes spending by Federal, state, and local governmental units).
4) Net Exports (exports minus imports).
According to our course text, Mankiw (2015), factors that might increase or decrease GDP from the demand side (aggregate demand) include changes in:
~ Consumption.
~ Investment.
~ Government Purchases.
~ Net Exports. (p. 431)
For example, in 2012, concern was expressed that Europe could fall back into a recession, and that could hurt the U.S. economy (reduce exports) and possibly cause the U.S. economy to also fall back into a recession.
Class – In your Week 4 assignment, how will you explain how shifts in aggregate supply can cause economic expansions and recessions? What real-world examples do you have?
Question 6 – Why is the aggregate demand curve downward sloping?
Hello, Everyone – Chapter 21 of our course textbook (Mankiw) starts out by discussing why the aggregate demand curve is downward sloping. For those of you who have taken microeconomics, you will notice the aggregate demand curve is downward sloping just like a market demand curve. To be clear, a market demand curve shows the demand for a single product or service, such as the demand for iPhones or ice cream cones, while an aggregate demand curve shows the demand for all products and services, which is measured by gross domestic product. In microeconomics, we study market demand curves, and, in macroeconomics, we study aggregate demand curves; both are downward sloping.
According to Mankiw (2015), there are three reasons why the aggregate demand curve is downward sloping including:
Wealth Effect.
Interest Rate Effect.
Exchange-Rate Effect.
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