CRITERIA FOR CLASSIFICATION OF MARKET

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CRITERIA FOR CLASSIFICATION OF MARKET We have already given classification of markets. The following criteria for the classification of markets have been suggested: (I) Substitutability of Products This criterion refers to the’ existence and ‘closeness of substitutes i.e. the extent and form of competition among the firms in the industry. This criterion may be measured by the conventional price cross-elasticity (ep) […]

PROBLEMS AND APPLICATIONS

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PROBLEMS AND APPLICATIONS 1. Suppose that the economy IS in a long-run equilibrium. a. Draw a diagram to illustrate the state of the economy. Be sure to show aggregate demand, short run aggregate supply, and long run aggregate supply. b. Now suppose that a stock-market crash causes aggregate demand to fall. Use your diagram to show what […]

QUESTIONS FOR REVIEW

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QUESTIONS FOR REVIEW 1. Name two macroeconomic variables that decline when the economy goes into a recession. Name one macroeconomic variable that rises during a recession. 2. Draw a diagram with aggregate demand, short-run aggregate supply, and long-run aggregate supply. Be careful to label the axes correctly. 3. List and explain the three .reasons the aggregate-demand […]

CONCLUSION

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CONCLUSION This chapter has achieved two goals. First, we have discussed some of the important facts about short-run fluctuations in economic activity. Second, we: have introduced a basic model to explain those fluctuations, called the model of aggregate demand and aggregate supply. We continue our study of this model in the next chapter to understand more fully what […]

THE EFFECTS OF A SHIFT IN AGGREGATE SUPPLY

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THE EFFECTS OF A SHIFT IN AGGREGATE SUPPLY Imagine once again an economy in its long-run equilibrium. Now suppose that suddenly some firms experience an increase in their costs of production. For example, bad weather in farm states might destroy some crops, driving up the cost of producing food products. Or a war in the Middle East […]

CASE STUDY

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CASE STUDY THE RECESSION OF 2001 unemployment rate rose from 3.9 percent in December 2000 to 4.9 percent in August 2001 and to 6.3 percent in June 2003. The unemployment rate then began to decline. By January 2005, unemployment ha:d fallen back to 5.2 percent.What caused the recession, and what ended it? The answer to both questions is shifts […]

THE EFFECTS OF A SHIFT IN AGGREGATE DEMAND

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THE EFFECTS OF A SHIFT IN AGGREGATE DEMAND Suppose that a wave of pessimism suddenly overtakes the economy. The cause might be a scandal in the White House, a crash in the stock market, or the outbreak of war overseas. Because of this event, many people lose confidence in the future and alter their plans. Households cut […]

Two CAUSES OF ECONOMIC FLUCTUATIONS

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Two CAUSES OF ECONOMIC FLUCTUATIONS tools we need to analyze fluctuations in economic activity. In particular, we can use what we have learned about aggregate demand and aggregate supply to examine the two basic causes of short-run fluctuations. shifts in aggregate demand and shifts in aggregate supply, To keep things simple, we assume the economy begins in […]