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11-1-07 - Paradox of Thrift Surplus of Labor bid wages...

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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(y D ) Business spending is not dependent of what they make.
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1930’s – Central Bank – keeps economy stable in terms of business cycle Change in Aggregate Demand
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