ECON102 Lecture Notes - Lecture 9: Business Cycle, Aggregate Demand, Potential Output

• School: University of Waterloo
• Department: Economics
• Course: ECON102
• Professor: Vaughan Mary Ann

Document Summary

Chapter 12 the business cycle, inflation and deflation. In the long run, inflation occurs if the quantity of money grows faster than potential gdp. In the short run, many factors can start an inflation, and real gdp and the price level interact. To study these interactions, we distinguish two sources of inflation: demand-pull inflation, cost-push inflation. An inflation that starts because aggregate demand increases is called demand-pull inflation. Demand-pull inflation can begin with any factor that increases aggregate demand. Y= c + i + g + x m. Start in the long run equilibrium at point a. The ad curve shifts to the right. The initial effects is rise in real gdp and increase in price level. Real gdp > potential gdp means inflationary gap: money wage adjusts. Since real gdp>potential gdp, unemployment