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6th edition
by Mark Lovewell
Understanding
Economics
6th edition
by Mark Lovewell
Chapter 10
Economic Fluctuations
Copyright 2012 by McGraw-Hill Ryerson Limited. All rights reserved.
Learning Objectives
After this chapter you will be able to:
1. identify aggregate demand and the
2.
3.
4.
5.
Aggregate Demand
Schedule
Price Real GDP Point on
Level
Graph
(2002,
$ billions)
200
160
120
650
700
750
a
b
c
160
120
80
AD
40
650
700
750
800
Aggregate Demand
Schedule
Price
Level
200
160
120
Real GDP
AD0
AD1
(2002 $ billions)
650
700
750
700
750
800
80
AD1
40
650
700
750
800
Aggregate Demand
Factors (a)
Aggregate Demand
Factors (b)
investment (I)
interest rates
business expectations
government purchases (G)
net exports (X-M)
foreign incomes
exchange rates
0
30
60
a
b
c
-A, B
A, B, C, D
4
A
0
C
30
D1
D
60
Aggregate Supply
Schedule
Price Real GDP Point on
Level
Graph
(2002,
$ billions)
120
160
200
240
650
700
725
730
a
b
c
d
AS
d
200
160
120
80
b
a
Potential
Output
40
0
650
675
700
725 730
Aggregate Supply
Schedule
Price
Level
120
160
200
240
Real GDP
AS0
AS1
(2002 $ billions)
650
700
725
730
700
725
730
731
AS1
AS0
Potential
Output
40
0
650
675
700
725
750
120
160
200
240
Real GDP
AS0
AS1
(2002 $ billions)
650
700
725
730
700
750
775
780
AS0
AS1
240
200
160
120
40
0
New
Potential
Output
Original
Potential
Output
80
650
725
775
Aggregate Supply
Factors
input prices.
Long-run changes in AS are caused by varying:
resource supplies
productivity
government policies
Equilibrium in the
Economy (a)
An Economy at
Equilibrium
Figure 10.9, Page 273
AS AD
(surplus (+) or
shortage (-))
(2002 $ billions)
200
160
120
200
AS
Positive Unplanned
Investment
160
b
120
80
Negative Unplanned
Investment
40
650
700
750
AD
800
Equilibrium in the
Economy (b)
AS
240
200
160
120
80
Potential
Output
40
725
AD
A recessionary gap:
occurs when equilibrium output falls short of
An inflationary gap:
occurs when equilibrium output exceeds
The Rule of 72
current consumption
its environmental costs
its social costs
Canadas Economic
Growth (a)
Figure 10.16, Page 287
Real GDP
CONTRACTION
EXPANSION
Long-Run Trend
of Potential Output
Peak
a
c
Recessionary gap
Inflationary gap
b
d
Trough
Time
Contractions
A contraction:
is usually caused by a decrease in AD magnified
Expansions
Expansion and
Contraction
Figure 10.18, Page 290
AS
f
240
160
Inflationary
Gap
AD0
Potential
Output
AD1
0
700
725
730
Recessionary
Gap
Low productivity
growth
Understanding
Economics
6th edition
by Mark Lovewell
Chapter 10
The End
Copyright 2012 by McGraw-Hill Ryerson Limited. All rights reserved.