How the sr and lr differ In the Lr, prices are flexible and can respond to changes in S or D. In the Sr many prices are stuck at some predetermined level In the sr, monetary policy does have a potent effect on output and employment

Goal Develop the Solow Growth Model How much of the economy's output should be consumed today and how much should be saved for the future? Static analysis(Ch. 3)> Dynamic

Definition Inflation The overall increase in prices Hyperinflation: extraordinary high inflation

Topics 4 questions from before HW#1 Unemployment Natural rate of unemployment reasons for unemployment Frictional unemployment Wait unemployment Patterns of unemployment

Topics Finish the assignment from last class Clarification for 4 questions from last class Demand for goods and services Equilibrium and the interest rate

The Data of macroeconomics * Measure of economic activity Gross Domestic Product(GDP) Total expenditure on domestically-produced final goods and services Total income earned by domestically located factors of production

Money Supply 100%-reserve banking Fractional-reserve banking

Investment Business fixed investment Equipment and structures that businesses buy to use in production Residential investment New housing that people buy to live in and that landlords buy to rent out Inventory investment Goods that business put aside in storage, including materials and supplies, work in process, and finished goods

Microeconomics behind Macroeconomics Consumption Investment Money and Advances in business cycle model

Interest-Rate Differentials Country risk&ex -rate- expectations Country risk Political upheaval default on loan repayments higher i-rate to compensate Ex-rate expectations expect RMB to appreciate loans in RMB can pay a lower i-rate