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Unformatted text preview: 11-1-07 Paradox of Thrift Surplus of Labor bid wages downward. Keynes what is going wrong must be on demand side Keynesian 1. Spend 2. C I Government 3. GDE = AD = C + I + G + X M 1930's If you raise taxes you have to decrease disposable income and consumer spending will go down. Rather balance budget or run deficit? Keynes took idea to Roosevelt and his advisors: In tough times, encourage spending and run fiscal deficit. How can government spend more than it takes in? "Financing the deficit" Government Borrowing Keynesian allows closer look at aggregate demand C = f(yD) Business spending is not dependent of what they make. 1930's Central Bank keeps economy stable in terms of business cycle Change in Aggregate Demand C + I + G + (X M) Increase Taxes Decrease Disposable Income Keynesian Supply can't change. U.S. Dollar Value Decreasing Our products are cheaper. As the American dollar falls, exports increase and economy goes up. Shift Up AD American Dollar goes down in value U.S. Depreciates Canadian and European Appreciates Capacity maximum a country can produce using resources correctly Federal Reserve 4% Growth Rate American economy Federal Reserve lowered interest rates. Capacity YF = QF Full Employment - QF Working below capacity not at full employment. Classical Recession Q1 < QF Keynesian Recession Y1 < YF ...
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This note was uploaded on 04/18/2008 for the course ECON 202 taught by Professor Woroby during the Spring '08 term at Towson.
- Spring '08