Equivalence of the Two Approaches

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Equivalence of the Two Approaches Now we have calculated GDP by the upper loop flow-of-product approach and by the lower-loop earnings-flow approach. Which is the better approach? The surprise is that they are actually the same. In fact, the two approaches are identical because we have ,included “profit” in the lower loop along with other incomes. What exactly is ·profit? Profit […]

The Role of Economic Policy

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The Role of Economic Policy How does macroeconomic policy fit to the picture? Even though. the economic environment in the United States was favorable in the 1990s, there were still heated debates about macroeconomic policies. A major debate in the United States surrounded the large projected budget surplus. Democrats wanted to devote the funds to social security and health care, in effect […]

The Growth Century

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The Growth Century The final act in our macroeconomic drama concerns the growth of output and prices over the entire period since 1900. Output has grown by a factor of almost 20 since the turn of the century. How can we explain this phenomenal increase? A careful look at American economic growth reveals -that the growth rate during this century has averaged […]

Tight Money, 1979-1982.

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Tight Money, 1979-1982. By 1979 the economy had recovered from the 1973 supply shock. Output had returned to its potential. But unrest in the Middle East led to another oil shock as the Iranian revolution produced a jump in oil prices from $14 per barrel in early 1978 to $34 per barrel in 1979. Inflation increased dramatically-averaging 12 percent per year from […]

Supply Shocks and Stagflation

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Supply Shocks and Stagflation During the 1970s, the industrial world was struck. by a new macroeconomic malady, supply shocks, a supply shock is a sudden change in input costs or productivity which shifts aggregate supply sharply. Supply shocks occurred with particular virulence in 1973. Called the-year of the seven plagues,” 1973 was marked by crop failures, shifting ocean currents, massive speculation on world commodity […]

Wartime Boom

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Wartime Boom The American economy entered the 1960 s having experienced numerous recessions. John Kennedy took over the presidency hoping to resuscitate the economy. This was the era when the “New Economics,” as the Keynesian approach was called, came to Economic advisers to Presidents Kennedy and Johnson recommended expansionary policies. and Congress enacted measures to stimulate the economy. including sharp cuts in personal and […]

MACROECONOMIC HISTORY: 1900-1999

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MACROECONOMIC HISTORY: 1900-1999 We can use the aggregate supply-and-demand apparatus to analyze some of the major macroeconomic events of twentieth-century American history. We fulls on the economic expansion during the Vietnam war, the stagflation caused by the supply shocks of the 1970s, the deep recession caused by the monetary contraction of the early 1980s, and the phenomenal record of ‘economic “growth for that […]

Macroeconomic Equilibrium

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Macroeconomic Equilibrium We now see how aggregate output and the price level adjust or equilateral to bring aggregate supply and aggregate demand into balance. That is. we use the and AD concepts to see how of price and quantity are determined 01′ to find the P and Q that . satisfy the buyers and sellers all taken together, For the AS and […]

Aggregate Supply and Demand Curves

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Aggregate Supply and Demand Curves Figure 20-6 shows the aggregate supply and desolated schedules for the output of an entire economy. the horizontal, or quantity, axis is the total out factories (real CDP) of the economy. On the  axis the overall price level (say, as measured by the summer price index) use the symbol Q for real output and […]

INSIDE THE MACROECONOMY: AGGREGATE SUPPLY AND DEMAND

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INSIDE THE MACROECONOMY: AGGREGATE SUPPLY AND DEMAND How do different forces’ interact to determine overall economic activity? Figure 2()’5 shows the’ relation ships among the different variables inside the macroeconomy. It separates variables into two categories: those affecting aggregate supply and those affecting aggregate demand. Dividing variables into these two categories helps us understand what determines the levels of output, prices. […]