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In the given lecture, what is the example set GDP value for full employment in a small economy?
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The example set GDP value for full employment in a small economy is $50 billion.
What typically happens in the long run after a demand shock when prices increase?
In the long run, workers renegotiate wages due to higher prices, causing the short-run aggregate supply curve to shift left, bringing the economy back to full employment output at a higher price level.
Who is the Phillips Curve named after, and what key relationship does it describe?
The Phillips Curve is named after economist Bill Phillips. It describes an inverse relationship between inflation and unemployment.
Describe the expected short-run effects of a positive demand shock on the economy.
In the short run, a positive demand shock can push the economy above full employment, decreasing unemployment and increasing inflation.
How is the Long Run Phillips Curve different from the Short Run Phillips Curve?
The Long Run Phillips Curve is a vertical line representing the natural rate of unemployment, indicating stable unemployment regardless of inflation, while the Short Run Phillips Curve shows an inverse relationship between inflation and unemployment.
Explain what happens to the Aggregate Demand curve when there's a government stimulus.
A government stimulus shifts the Aggregate Demand curve to the right, leading to a new equilibrium with higher GDP and increased inflation.
Why is the Long Run Aggregate Supply Curve considered vertical?
The Long Run Aggregate Supply Curve is vertical because it represents the full employment output which does not change with the price level.
What is the effect of a rightward shift in the Aggregate Demand curve in terms of inflation and unemployment?
A rightward shift in the Aggregate Demand curve results in increased inflation and reduced unemployment in the short run.
What is the natural rate of unemployment, and how is it represented on the Long Run Phillips Curve?
The natural rate of unemployment is the rate that corresponds with full employment. It is represented as a vertical line on the Long Run Phillips Curve.
What phenomenon in the 1970s led economists to reevaluate the Phillips Curve?
Stagflation, which is characterized by high inflation and high unemployment simultaneously, led economists to reconsider the Phillips Curve.
How is full employment output represented in aggregate supply and demand models?
Full employment output is represented by the intersection of the Long Run Aggregate Supply curve with the real GDP axis.
What do the horizontal and vertical axes represent on an Aggregate Demand and Aggregate Supply model?
The horizontal axis represents Real GDP, and the vertical axis represents the price level.
What can cause the Short Run Phillips Curve to shift to the right?
Increased inflation expectations and wage negotiations can cause the Short Run Phillips Curve to shift to the right, leading to higher unemployment at a given inflation rate.
What role do wage negotiations play in shifting the Short Run Aggregate Supply Curve?
Wage negotiations, driven by increased price levels, can cause the Short Run Aggregate Supply Curve to shift left, as labor costs rise and reduce short-run production.
What economic conditions are associated with a strong economy on the Short Run Phillips Curve?
A strong economy on the Short Run Phillips Curve is associated with high inflation and low unemployment.
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