Macroeconomics by Rossana Robert J

Author:Rossana, Robert J.
Language: eng
Format: epub
Tags: Economics, Finance, Business & Industry
Publisher: Taylor & Francis
Published: 2011-04-27T16:00:00+00:00

Part III

Aggregate Economic Models

Chapter 9

Classical Models of the Aggregate Economy

LEARNING OBJECTIVES

In this chapter we begin our study of aggregate economies by considering the features of a classical model of the economy. The model abstracts from business cycles and focuses on the behavior of the economy in equilibrium, leaving the business cycle for later study. We first derive the level of full-employment output in the economy and the demand for goods schedule. The model is used to investigate the effects upon the economy of economic policy and supply disturbances. We also examine the properties that the economy must obey to achieve intertemporal efficiency, allocating resources efficiently over time and achieving welfare maxima. The chapter is closed by a brief introduction to the theory of economic growth. Here are a few of the questions that we investigate.

What determines the level of Potential GDP?

How do shifts in the demand for goods affect the allocation of goods across the sectors of the economy?

How do supply-side shocks affect the aggregate economy?

What is meant by intertemporal efficiency?

Why does an economy grow?

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