ECO 105 Chapter Notes - Chapter 11: Economic Equilibrium, Potential Output, Aggregate Supply

• School: Pace University
• Department: Economics
• Course: ECO 105
• Professor: Kier Hanratty

Document Summary

Secular stagnation theory: theory in which advanced countries as the us would eventually stop growing b/c investment opportunities would be eliminated. Globalization: increasing economic connections among economies around the world that increases competition among countries: according to structural stagnation hypothesis, globalization causes structural problems that primarily affect advanced economies, particularly the us & But by then, us share of world output would have fallen: so in the structural stagnation hypothesis, eventually us economy may return to traditional growth path, but that eventually will be a long time in coming. Globalized as/ad model: standard as/ad model w/ an added world supply curve that captures the effect that globalization can have on an economy. Graph a is the standard as/ad model w/ an economy in both short-run & long-run equilibrium. The globalized as/ad model in graph b shows a flat world aggregate supply curve. The economy is also in short-run & long-run equilibrium b/c the curves meet at the same location.