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- 2. Learning Objectives Understand what happens during business cycles and their relationship to long-run economic growth. Discuss
- 3. Learning Objectives Use the aggregate demand and aggregate supply model to illustrate the difference between short-run
- 4. Business cycles impacts on Canon Canon was able to grow rapidly during the economic boom experienced
- 5. Business cycle: Alternating periods of economic expansion and economic recession. The expansion phase Production, employment and
- 6. Recession: A significant decline in activity spread across the economy, lasting more than a few months,
- 7. Movements in real GDP, Australia, 1980 – 2007: Figure 13.1 Source: Australian Bureau of Statistics (2008),
- 8. What happens during a business cycle? Each business cycle is different, however all share some similarities.
- 9. What happens during a business cycle? The effect of the business cycle on car sales. Consumer
- 10. The effect of the business cycle on new car sales, Australia, 1994 – 2007: Figure 13.2
- 11. What happens during a business cycle? The impact of a recession on the inflation rate. During
- 12. The impact of a recession on the inflation rate, Australia: Figure 13.3 Source: Reserve Bank of
- 13. What happens during a business cycle? The impact of a recession on the unemployment rate. Recessions
- 14. The impact of a recession on the unemployment rate, Australia: Figure 13.4 Source: Australian Bureau of
- 15. What happens during a business cycle? Recessions are partly due to business cycles and partly due
- 16. Fluctuations in real GDP, Australia, 1960-2007: Figure 13.5 Source: Australian Bureau of Statistics (2007), Australian National
- 17. Aggregate demand and aggregate supply model: A model that explains short-run fluctuations in real GDP and
- 18. Aggregate demand curve (AD): A curve showing the relationship between the price level and the quantity
- 19. Price level Real GDP (billions of dollars) 0 $1000 Hubbard, Garnett, Lewis and O’Brien: Essentials of
- 20. Why is the aggregate demand curve downward sloping? The wealth effect How a change in the
- 21. Shifts in the aggregate demand curve versus movements along it. The AD curve shows the relationship
- 22. The variables that shift the aggregate demand curve: Changes in government policies. Examples: taxes; government purchases.
- 23. The effect of exchange rates on sales During some years, the falling value of the Australian
- 24. Determinants of Aggregate Demand Explain whether each of the following will cause a movement along or
- 25. Determinants of Aggregate Demand a) Rising interest rates cause a drop in consumer optimism as households
- 26. STEP 1: Review the material. This question is intended to help differentiate between events that will
- 27. STEP 2: Answering (a): Households become pessimistic about the future. In order to ensure they can
- 28. Aggregate quantity demanded will decrease as households spend less in order to contribute more to their
- 29. The long-run aggregate supply curve (LRAS): A curve showing the relationship in the long run between
- 30. Shifts in the long-run aggregate supply curve. The LRAS curve shifts because potential real GDP increases
- 31. Price level Real GDP (billions of dollars) 0 $1100 Hubbard, Garnett, Lewis and O’Brien: Essentials of
- 32. The short-run aggregate supply curve. The SRAS is upward sloping, showing that in the short-run firms
- 33. Shifts in the short-run aggregate supply curve versus movements along it. The SRAS curve shows the
- 34. Variables that shift the SRAS curve. Expected changes in the future price level. Adjustments of workers
- 35. Price level Real GDP (billions of dollars) 0 $1000 Hubbard, Garnett, Lewis and O’Brien: Essentials of
- 36. Variables that shift the short-run and the long-run aggregate supply curves. Increases in the labour force
- 37. In long-run equilibrium, the aggregate demand and short-run aggregate supply curves intersect at a point along
- 38. Price level Real GDP (billions of dollars) 0 $1000 Hubbard, Garnett, Lewis and O’Brien: Essentials of
- 39. Recessions, expansions and supply shocks. The following analysis of the aggregate demand and aggregate supply model
- 40. Recession The short-run effect of a decline in aggregate demand. AD curve shifts left, and real
- 41. Price level Real GDP (billions of dollars) 0 1000 Hubbard, Garnett, Lewis and O’Brien: Essentials of
- 42. Expansion The short-run effect of an increase in aggregate demand. AD curve shifts right, real GDP
- 43. Price level Real GDP (billions of dollars) 0 $1000 Hubbard, Garnett, Lewis and O’Brien: Essentials of
- 44. Supply shock: An unexpected event that causes the short-run aggregate supply curve to shift. Stagflation: A
- 45. Supply shock The short-run effect of a supply shock. SRAS curve shifts left, real GDP falls
- 46. (b) Adjustment back to potential GDP – the long-run effect of a supply shock. 0 (a)
- 47. (b) Adjustment back to potential GDP – the long-run effect of a supply shock. 0 (a)
- 48. Using the Aggregate Demand Aggregate Supply model. Assume the economy is initially in equilibrium with long-run
- 49. STEP 1: Review the chapter material. The basic equilibrium model is explained in the section on
- 50. The price level is now higher than workers and firms had expected. As workers and firms
- 51. A dynamic aggregate demand and aggregate supply model can be created by making three changes to
- 52. Price level Real GDP (billions of dollars) 0 $1000 Hubbard, Garnett, Lewis and O’Brien: Essentials of
- 53. Price level Real GDP (billions of dollars) 0 $1000 Hubbard, Garnett, Lewis and O’Brien: Essentials of
- 54. Does rising productivity growth reduce employment? New technology and equipment increases labour productivity. MAKING THE CONNECTION
- 55. JB Hi-Fi reports sales up 36% and net profit after tax up 56%. An Inside Look
- 56. An Inside Look Figure 1: Australian economic expansion between 2002 and 2007 Hubbard, Garnett, Lewis and
- 57. Key Terms Aggregate demand and aggregate supply model Aggregate demand curve (AD) Business cycle Long-run aggregate
- 58. At various times, the Australian dollar increases in value against the US dollar and other major
- 59. Q1. From a trough to a peak, the economy goes through: a. The recession phase of
- 60. Q1. From a trough to a peak, the economy goes through: a. The recession phase of
- 61. Q2. During the early stages of a recovery: a. Firms usually rush to hire new employees
- 62. Q2. During the early stages of a recovery: a. Firms usually rush to hire new employees
- 63. Q3. The aggregate demand curve shows the relationship between the price level and the quantity of
- 64. Q3. The aggregate demand curve shows the relationship between the price level and the quantity of
- 65. Q4. Which of the following factors do not cause the aggregate demand curve to shift? a.
- 66. Q4. Which of the following factors do not cause the aggregate demand curve to shift? a.
- 67. Q5. How can government policies shift the aggregate demand curve to the right? a. By increasing
- 68. Q5. How can government policies shift the aggregate demand curve to the right? a. By increasing
- 69. Q6. Which of the following statements is true? a. In the long run, increases in the
- 70. Q6. Which of the following statements is true? a. In the long run, increases in the
- 71. Q7. Which of the following would shift both the short-run and the long-run aggregate supply curves?
- 72. Q7. Which of the following would shift both the short-run and the long-run aggregate supply curves?
- 73. Q8. Which of the following is usually the cause of stagflation? a. Reductions in government spending.
- 74. Q8. Which of the following is usually the cause of stagflation? a. Reductions in government spending.
- 75. Aggregate Expenditure Model: A macroeconomic model that focuses on the relationship between total spending and real
- 76. An example of a 45° line diagram: Figure 13A.1 Hubbard, Garnett, Lewis and O’Brien: Essentials of
- 77. Aggregate Expenditure (AE): The total amount of spending in the economy: the sum of consumption (C),
- 78. Using the 45° line diagram to illustrate macroeconomic equilibrium. The 45° line measures real national income
- 79. The relationship between planned aggregate expenditure and GDP on a 45° line diagram: Figure 13A.2 Hubbard,
- 80. Consumption function: The relationship between consumption spending and disposable income. The consumption function intersects the vertical
- 81. Macroeconomic equilibrium on the 45° line diagram: Figure 13A.3 Hubbard, Garnett, Lewis and O’Brien: Essentials of
- 82. The AE line intersects the 45° line at equilibrium real GDP. At points above the 45°
- 83. Macroeconomic equilibrium : Figure 13A.4 Hubbard, Garnett, Lewis and O’Brien: Essentials of Economics © 2010 Pearson
- 84. Showing a recession on the 45° line diagram Macroeconomic equilibrium can occur at any point on
- 85. Showing a recession on the 45° line: Figure 13A.5 Hubbard, Garnett, Lewis and O’Brien: Essentials of
- 86. QA1. The idea of the aggregate expenditure model is that, in any particular year, the level
- 87. QA1. The idea of the aggregate expenditure model is that, in any particular year, the level
- 88. QA2. Which of the following statements is correct? Actual investment and planned investment are always the
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