{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

CHAPTER 9 - CHAPTER 9 The classical model If left to its...

Info icon This preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
CHAPTER 9-2/20/08 The classical model: If left to its own devices, a free-market economy is self-correcting. Ex: if planned investment decreases, consumption goes up and replaces investment spending. How? INTEREST RATES fall (and then investment will pick up a bit, but consumption is still higher. Investment spending goes down, we are still at full employment. Demand for loans curve shifts to the left. Interest rate falls; equilibrium consumption will be higher in the new loans market. Consumption – (-I), consumption is still higher. One part of spending goes down, the other one will go up as an adjustment in the classical loans market. Chapter 9 Conclusion of classical model: The classical model cannot explain short run fluctuations in output and employment “Until the great depression of the 1930s, there was little reason to questions this classical ideas….But during the great depression, output was stuck far below its potential for many years.” Keynes: (”canes”)
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern