chapter13notes

chapter13notes - Chapter 13: Spending and Output in the...

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Chapter 13: Spending and Output in the Short Run: h Grandma story: during great depression couldn’t afford to buy shoes for kids b/c parents lost jobs at the shoe factories that had to close down because nobodoy had money to buy shoes Micro form of cost to society b/c of recessionary gap h John Keynesian: idea that decline in aggregate spending cause output to fall below potential output h Gov’t policies that affect level of spending to help get rid of gaps called stabilization policies h Keynesian model: Key assumption: in the short run, firms meet the demand for their products at preset prices h Realistic b/c do not change prices a lot because it would be costly – menu costs: Literal- printing menu Doing market survey to figure out what price to charge relative to competitors Informing buyers of new price Regular customers might leave to look for cheaper prices h Based on cost-benefit principle: if cost > benefit to change price all the time then
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chapter13notes - Chapter 13: Spending and Output in the...

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