Understanding Macroeconomics

Recessions: periods of falling real incomes and rising unemployment
Depressions: severe recessions (very rare)
Short-run economic fluctuations are often called business cycles
FACTS:
1. Economic fluctuations are irregular and unpredictable. 2. Most macroeconomic quantities fluctuate together. 3. As output falls, unemployment rises.
The AD curve shows the quantity of all g&s demanded in the economy at any given price level.
Y = C + I + G + NX
When an increase happened to C,I,G,(NX or EX) - the AD curve shifts right.
Why the AD Curve Might Shift ? * Changes in C * Stock market boom/crash * Preferences re: consumption/saving tradeoff * Tax hikes/cuts * Changes in I * Firms buy new computers, equipment, factories * Expectations, optimism/pessimism * Interest rates * Investment Tax Credit or other tax incentives * Changes in G * Government spending, e.g., defense * Regional & local spending, e.g., roads, schools * Changes in NX * Booms/recessions in countries that buy our exports * Appreciation/depreciation resulting from international speculation in foreign exchange market

Question :
What happens to aggregate demand in each of the following cases? 1. The interest rate rises
I falls, AD curve shifts left 2. Wealth falls
C falls, AD curve shifts right 3. The Dirham depreciates relative to foreign currencies
NX increases, AD curve shifts right 4. Households expect lower prices in the future
C falls, AD curve shifts left 5. A ten-year-old investment tax credit expires.
I fall, AD curve shifts left 6. The government builds a new road.
G increases, AD curve shifts right 7. Sales taxes are lowered.
C increase, AD curve shifts right
The AS curve shows the total quantity of g&s firms produce and sell at any given price level.

The natural rate of output (YN) is the amount of output the economy produces when