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Econ 101b: March 3 Lecture: Introduction to Aggregate Demand

Lecture Audio


We have three types of models, dealing with three types of questions:

  • The Long Run: decade-to-decade and generation-to-generation trends in living standards and productivity levels: Real GDP
  • The Medium Run: triennial or longer fluctuations in the balance of resources between investment and consumption, production and exports and imports; prices and inflation: The Price Level
  • The Short Run: year-to-year scale fluctuations in capacity utilization, unemployment, and other measures of idled resources: Unemployment

Each of the models works relatively well, in its place and for its principal issues. The big problems in macroeconomics, and the big research questions, come where the models overlap or fail to overlap and have to be welded together--a process that does not work very well.

Today we start on the short run--the year-to-year scale fluctuations in capacity utilization, unemployment, and other measures of idled resources. And we start by making the sticky price assumption: prices in the relevant markets don't change fast enough to be much use as an equilibrating mechanism; other things take over...


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