Lecture 3: Short-run fluctuations, Keynesian Model

Question 1

Output gap

Answer 1

Yt-Yt*

Question 2

Unemployment gap

Answer 2

Ut-Ut* = cyclical unemployment

Question 3

Okun’s law

Explanaition and formula

Answer 3

Cyclical unemployment and output gap are negatively associated - when Y is low unemployment will be high.
(Ut-Ut)=-B(Yt-Yt)

Question 4

Classical business cycle theory

Answer 4

Say’s law - supply creates its own demand

Question 5

Keynesian business cycle theory

Answer 5

Smooth business cycle through targeting aggregate demand

Question 6

Planned Aggregate Expenditure

Keynesian Macroeconomics

Answer 6

= C + I + G

Question 7

Planned consumption

Keynesian Macroeconomics

Answer 7

= C(hat) +c(Y-T)
C(hat) = autonomous consumption
c = MPC

Question 8

Keynesian equilibrium

Answer 8

PAE = AE (=Y)
Y = 1/(1-c)x(C - cT + I + G)