Chapter 33 Journal

Chapter 33 is about aggregate supply and aggregate demand, this involves short-run in economies. Recessions are defined as a period of declining real incomes and rising unemployment and depressions are a more severe recession. Short-run fluctuations in economic activities appear in all countries throughout history. There are 3 important properties. The first is that economic fluctuations are irregular and unpredictable. These fluctuations are called the business cycle as the economic fluctuations correspond to changes in business conditions. As real GDP goes up fast, business is good so the economy is expanding, there are more customers and profits are plenty. When real GDP is falling, it does the opposite. The second property is that most of the macroeconomic quantities fluctuate together. Real GDP is the most commonly used to watch short-run changes in the economy. But that doesn’t matter because when real GDP falls, so do the other quantities that go along with it. The last property is as output falls, unemployment rises. The changes in the output of goods is strongly correlated to the utilization of the labor force. When real GDP falls, unemployment rate goes up and when real GDP rises, unemployment rate goes down. In the short term, real and nominal values are more connected, and the changes in money supply can temporarily push the real GDP away from the long-run. The model that we are using is the model of aggregate demand and aggregate supply, this model is what most economists use to explain short-run fluctuations around the long-term trend. Aggregate demand is the curve that shows the quantity of goods that households, firms, the government, and foreigners demand at each price level. Aggregate supply is the curve that shows the quantity of goods that firms choose to produce and sell at each price level. Price level and quantity of output adjust to balance out the aggregate demand and aggregate supply. Overall, this was a long chapter to read and there was a lot of ideas to take in. On a scale of 1-3 I would rate this chapter a 2.