Week 10 - Macro policy issues, part 2

Question 1

what is the aggregate supply?

Answer 1

Captures real economic growth

Long run: Economy at full employment level of output

As prices increase, GDP increases and the curve slopes up

Question 2

What is aggregate demand?

Answer 2

Captures goods market and money market, ignores bond market

as price decreases, GDP decreases and slope goes down

Question 3

what happens to the supply curve in the long run at the rate of maximum employment?

Answer 3

the long run supply curve is horizontal and unaffected by price movements.

Question 4

what is the macroequilibruim point?

Answer 4

where the short run supply and the demand curve meet.

Question 5

what is the natural rate of unemployment

Answer 5

4.5%

Question 6

what do fiscal and momentary policy adjust to

Answer 6

GDP output cannot be pushed beyond natural GDP output. it will always adjust back to Yn; prices can be risen over the long term but not GDP