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ABSOLUTE POVERTY LEVEL: The amount of income a person or family needs to purchase an absolute amount of the basic necessities of life. These basic necessities are identified in terms of calories of food, BTUs of energy, square feet of living space, etc. The problem with the absolute poverty level is that there really are no absolutes when in comes to consuming goods. You can consume a given poverty level of calories eating relatively expensive steak, relatively inexpensive pasta, or garbage from a restaurant dumpster. The income needed to acquire each of these calorie "minimums" vary greatly. That's why some prefer a relative poverty level.

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Lesson Contents
Unit 1: The Concept
  • What It Is
  • Two Sides: SRAS
  • Two Sides: LRAS
  • Two Sides: AD
  • Two Traits
  • Unit 1 Summary
  • Unit 2: Equilibrium
  • Concept
  • Three Markets
  • Moving Target
  • Unit 2 Summary
  • Unit 3: Doing Curves
  • Long-Run Equilibrium
  • Long-Run Disequilibrium: Too High
  • Long-Run Disequilibrium: Too Low
  • Short-Run Equilibrium
  • Unit 3 Summary
  • Unit 4: Self Correction
  • Short Run
  • Recessionary Gap
  • Inflationary Gap
  • Unit 4 Summary
  • Unit 5: Policy Preview
  • Time
  • Time of Adjustment
  • Unit 5 Summary
  • Course Home
    Aggregate Market

    This lesson is devoted to the exposition of the aggregate market, which combines the aggregate demand curve and the two aggregate supply curves into two related models used to analyze the macroeconomy. The main focus of this lesson is on how each of the two models, one for the short run and one for the long run, achieve equilibrium. A key conclusion is that the short-run equilibrium does not necessarily correspond to the full-employment production achieved by the long-run equilibrium. This creates recessionary and inflation gaps, which correspond to the macroeconomic problems of unemployment and inflation.

    • In the first unit of this lesson we ponder the basics of the aggregate market, including the importance of aggregate demand, aggregate supply, the price level, real production, unemployment, and inflation.
    • Moving into the second unit, we review the concept of equilibrium and see how it relates to the aggregate market in both the short run and the long run.
    • The third unit analyzes short and long-run equilibrium by combining the aggregate demand, short-run aggregate supply, and long-run aggregate supply curves.
    • The topic of self-correction is examined in the fourth unit, especially how automatic shifts of the short-run aggregate supply curve can eliminate recessionary and inflationary gaps.
    • The fifth and final unit of this lesson previews the use of the aggregate market to analyze business cycle stabilization policies, with particular emphasis on the time period of adjustment.

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    MARGINAL UTILITY OF INCOME

    The change in utility resulting from a given change in income. This is a specialized case of the general notion of marginal utility, which is simply the change in utility resulting from a given change in the consumption of a good. Marginal utility of income is key to identifying alternative risk preferences, including risk aversion, risk neutrality, and risk loving. These three risk preferences are indicated by three marginal utility of income possibilities, decreasing (risk aversion), increasing (risk loving), and constant (risk neutrality).

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    APLS

    WHITE GULLIBON
    [What's This?]

    Today, you are likely to spend a great deal of time calling an endless list of 800 numbers looking to buy either a box of multi-colored, plastic paper clips or several orange mixing bowls. Be on the lookout for broken fingernail clippers.
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    This isn't me! What am I?

    The wealthy industrialist, Andrew Carnegie, was once removed from a London tram because he lacked the money needed for the fare.
    "Now is the only time there is. Make your now wow, your minutes miracles, and your days pay. Your life will have been magnificently lived and invested, and when you die you will have made a difference."

    -- Mark Victor Hansen

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