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Lecture Essentials of Economics: Chapter 11 - Bradley R. Schiller, Cynthia Hill

Chapter 11 "Aggregate supply and demand", after reading this chapter, you should be able to: Cite the major macro outcomes and their determinants, explain how classical and Keynesian macro views differ, illustrate the shapes of the aggregate demand and supply curves, tell how macro failure occurs, outline the major policy options for macro government intervention. | Chapter 11 Aggregate Supply and Demand Macro Outcomes Macroeconomics is the study of the aggregate economy Macro outcomes include: Output: the total volume of goods and services produced (real GDP). Jobs: the levels of employment and unemployment. Prices: the average prices of goods and services. 11- There are five basic macro outcomes. Two are on the next slide. Macro outcomes include: Growth: the year-to-year expansion in production capacity. International balances: the international value of the dollar; trade and payment balances with other countries. Macro Outcomes 11- Figure 11.1 11- This slide will recur throughout the macro portion of the course. Classical Theory Self-adjustment: According to the classical view, the economy self-adjusts to deviations from its long-term growth trend. Classical theory was the predominant theory prior to the 1930s. 11- The self-adjustment concept is the basis for laissez faire. Classical Theory The cornerstones of the classical theory were flexible prices and flexible wages. Flexible prices: Virtually guarantee that all output can be sold. No one would lose a job because of weak consumer demand. 11- Classical economists believed that prices and wages would adjust automatically. Classical Theory The cornerstones of the classical theory were flexible prices and flexible wages. Flexible wages: Ensure that everyone who wants a job would have a job. 11- Classical economists believed that prices and wages would adjust automatically. Classical Theory Say’s law: According to Say’s law, “supply creates its own demand.” Unsold goods will ultimately be sold when buyers and sellers find an acceptable price. Government intervention in the self-adjusting economy was unnecessary. 11- Jean-Baptiste Say was a French economist who also advocated laissez-faire. Keynesian Revolution The Great Depression was a stunning blow to Classical economists. John Maynard Keynes provided an alternative . | Chapter 11 Aggregate Supply and Demand Macro Outcomes Macroeconomics is the study of the aggregate economy Macro outcomes include: Output: the total volume of goods and services produced (real GDP). Jobs: the levels of employment and unemployment. Prices: the average prices of goods and services. 11- There are five basic macro outcomes. Two are on the next slide. Macro outcomes include: Growth: the year-to-year expansion in production capacity. International balances: the international value of the dollar; trade and payment balances with other countries. Macro Outcomes 11- Figure 11.1 11- This slide will recur throughout the macro portion of the course. Classical Theory Self-adjustment: According to the classical view, the economy self-adjusts to deviations from its long-term growth trend. Classical theory was the predominant theory prior to the 1930s. 11- The self-adjustment concept is the basis for laissez faire. Classical Theory The cornerstones of .