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Classical approach

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Classical approach

  1. 1. Short quiz 1. Draw a correctly labeled SRAS/SRAD and LRAS graph 2. What should happen to the economy if SRAD decreases, like it did in the Great Depression. 3. Stagflation in the 1970s was a decrease in SRAS. Make the change on your graph. What were the two bad effects of stagflation?
  2. 2. A supply question Long run: aggregate supply Factors of production: Land: Resources, how hard to get Labor: population Human capital Health Capital: Technology productivity How else have we sketched this? Klein, do it on board
  3. 3. So then LRAS must be… • http://stats.oecd.org/Index.aspx?DatasetCode =LEVEL • LRAS = PPF = full employment
  4. 4. 24% 93% 0 (391 is best) 4.8 % 93% 1 (UNAM) Unemployment Literacy Rate Top 50 univ
  5. 5. On our SRAD/SRAS graph Stock market crash spooks investors Draw short run changes, back to LR though Cyclical unemployment Structural unemployment? INVISIBLE HAND WILL FIX IT
  6. 6. On our SRAD/SRAS graph Population boom 1950s Draw short run changes INVISIBLE HAND WILL FIX IT
  7. 7. On our SRAD/SRAS graph New technology for firms to build goods Draw changes INVISIBLE HAND WILL FIX IT
  8. 8. On our SRAD/SRAS graph Housing “bubble” of 2000’s Draw changes INVISIBLE HAND WILL FIX IT
  9. 9. Other “Great Depressions” in US • Panics • 1797 • 1815-1821 • 1873 • 1893 • 1907 • Classical response….. • Karl Marx watched and commented QE Assignment: Small timeline of these recessions for my wall. Dates, cause, life during, picture
  10. 10. Aggregate Demand Changes Assignment • Changes to Aggregate Demand • Pages 729-730 • Choose: • For each shift of AD curve, explain, give example of left and right by drawing a picture, sketch graphs (small poster for wall)

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