ECSENOMICS Chapter 23 Business fluctuations and the Theory of Aggregate Demand McGraw-Hilllrwin Copyright C 2001 The McGraw-Hill Companies, Inc. All rights reserved
McGraw-Hill/Irwin Copyright © 2001 The McGraw-Hill Companies, Inc. All rights reserved. Chapter 23 Business Fluctuations and the Theory of Aggregate Demand
ECSENOMICS Business fluctuations have been a S Persistent Feature of Capitalism T-167 igure 23-1 Fi (=) Aggregate iteraction of ASand AD McGraw-Hilllrwin Copyright C 2001 The McGraw-Hill Companies, Inc. All rights reserved
McGraw-Hill/Irwin Copyright © 2001 The McGraw-Hill Companies, Inc. All rights reserved. T-167 Figure 23-1 Business Fluctuations Have Been a Persistent Feature of Capitalism
ECSENOMICS A Business Cycle, Like the Year Has Its seasons T-168 Figure 23-2 Recession Peak Peak Peak 9Ev Trough Recession Trough McGraw-Hilllrwin Copyright C 2001 The McGraw-Hill Companies, Inc. All rights reserved
McGraw-Hill/Irwin Copyright © 2001 The McGraw-Hill Companies, Inc. All rights reserved. A Business Cycle, Like the Year, Has Its Seasons T-168 Figure 23-2
ECSENOMICS Business Activity Since 1919 T-169 Figure 23-3 Bull-market World War Il 40F New era opert Kerean Persian cult Poster First oil New economy of 1990s McGraw-Hilllrwin Source: Federal Reserve Board, detrended by authors
McGraw-Hill/Irwin Copyright © 2001 The McGraw-Hill Companies, Inc. All rights reserved. Business Activity Since 1919 T-169 Figure 23-3 Source: Federal Reserve Board, detrended by authors
ECSENOMICS A Decline in Aggregate Demand t Leads to an Economic Downturn 1-170 Figure 23-4 P AS AD AD 3 B A AD Potential output Q Q Real output McGraw-Hilllrwin Copyright C 2001 The McGraw-Hill Companies, Inc. All rights reserved
McGraw-Hill/Irwin Copyright © 2001 The McGraw-Hill Companies, Inc. All rights reserved. A Decline in Aggregate Demand Leads to an Economic Downturn T-170 Figure 23-4
ECSENOMICS How Have Professional Forecasts performed? 1-171 Figure 23-5 1950s 1960s 1970s 1980s Professional forecasters'error for growth of GDP " Naive forecast error for growth in GDP McGraw-Hilllrwin Source: Stephen McNees, New England Economic Review, July 1992
McGraw-Hill/Irwin Copyright © 2001 The McGraw-Hill Companies, Inc. All rights reserved. How Have Professional Forecasts Performed? T-171 Figure 23-5 Source: Stephen McNees, New England Economic Review, July 1992
ECSENOMICS s Components of Aggregate Demand 1-172 Figure 23-6 C 8 AD Q Real GDP McGraw-Hilllrwin Copyright C 2001 The McGraw-Hill Companies, Inc. All rights reserved
McGraw-Hill/Irwin Copyright © 2001 The McGraw-Hill Companies, Inc. All rights reserved. Components of Aggregate Demand T-172 Figure 23-6
ECSENOMICS Movement along vs Shifts of Aggregate Demand T-173 Figure 23-7 (a) Movements along the Aggregate Demand Curve (b)Shifts of Aggregate Demand 250 250 200 8150 00 100 S AD AD AD 0 2,0003004.0005.000 Q 1.0002.0003,0004.0005.000 Real GDP(billions) Real GDP (billions) McGraw-Hilllrwin Copyright C 2001 The McGraw-Hill Companies, Inc. All rights reserved
McGraw-Hill/Irwin Copyright © 2001 The McGraw-Hill Companies, Inc. All rights reserved. Movement along vs. Shifts of Aggregate Demand T-173 Figure 23-7