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ADJUSTMENT, SHORT-RUN AGGREGATE MARKET: Disequilibrium in the short-run aggregate market induces changes in the price level that restore equilibrium. If the price level is above the short-run equilibrium price level, economy-wide product market surpluses cause the price level to fall. If the price level is below the short-run equilibrium price level, economy-wide product market shortages cause the price level to rise. In both cases short-run equilibrium is restored. You might want to compare adjustment, long-run aggregate market. Price level changes induce changes in both aggregate expenditures and real production. Unlike the long-run aggregate market, changes in the price level can induce changes in short-run aggregate supply, making it greater or less than full-employment real production.
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Lesson Contents
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Unit 1: Instability |
Unit 2: Extension |
Unit 3: Basic Shifts |
Unit 4: Complex Shifts |
Unit 5: Synthesis |
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Aggregate Shocks
In this lesson we use the aggregate market model to analyze assorted disruptions that cause shifts of the aggregate demand, short-run aggregate supply, and long-run aggregate supply curves. The reason for doing this, of course, is to explain and understand macroeconomic activity, especially business cycle instability that causes inflation and unemployment. - The first unit of this lesson reviews the aggregate market and examines how it is affected macroeconomic instability.
- In the second unit, we take and look at assorted demands on both the demand side and supply side of the aggregate market that cause shorts to the aggregate market.
- We then move into an analysis of six basic shifts involving increases and decreases in the aggregate demand, short-run aggregate supply, and long-run aggregate supply curves.
- The fourth unit builds on these six basic shifts to examine four complex shifts in which recessionary and inflationary gaps trigger self-correction adjustments of the short-run aggregate supply.
- We close out this lesson in the fifth with a thought or two on how the aggregate market can be used to explain business cycle fluctuations.
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LOGROLLING The trading of votes to ensure a favorable outcome for two or more separate decisions. Logrolling occurs when each of two people agree to vote for the other's project to ensure that both are passed. A votes for B and B votes for A. Logrolling is commonly used when neither decision is able to obtain the necessary majority of the votes needed for passage on their own accord. Explicit logrolling is when each of two voters agree to cast separate votes for two separate programs. Implicit logrolling is when two separate programs or policies are combined into a single package, which is then subject to a single vote. Logrolling can generate either an efficient or an inefficient allocation of resources, meaning that efficiency is irrelevant to the logrolling process.
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ORANGE REBELOON [What's This?]
Today, you are likely to spend a great deal of time calling an endless list of 800 numbers wanting to buy either a turbo-powered vacuum cleaner or a battery-powered, rechargeable vacuum cleaner. Be on the lookout for jovial bank tellers. Your Complete Scope
This isn't me! What am I?
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The wealthy industrialist, Andrew Carnegie, was once removed from a London tram because he lacked the money needed for the fare.
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"Sometimes our light goes out, but is blown into flame by another human being. Each of us owes deepest thanks to those who have rekindled this light. " -- Albert Schweitzer, missionary physician
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AD Aggregate Demand
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