Principles of Economics- Mankiw (5th) 678

Principles of Economics- Mankiw (5th) 678 - 702 PA R T T W...

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702 PART TWELVE SHORT-RUN ECONOMIC FLUCTUATIONS unemployment is called a recession if it is relatively mild and a depression if it is more severe. What causes short-run fluctuations in economic activity? What, if anything, can public policy do to prevent periods of falling incomes and rising unemploy- ment? When recessions and depressions occur, how can policymakers reduce their length and severity? These are the questions that we take up in this and the next two chapters. The variables that we study in the coming chapters are largely those we have already seen. They include GDP, unemployment, interest rates, exchange rates, and the price level. Also familiar are the policy instruments of government spend- ing, taxes, and the money supply. What differs in the next few chapters is the time horizon of our analysis. Our focus in the previous seven chapters has been on the behavior of the economy in the long run. Our focus now is on the economy’s short- run fluctuations around its long-run trend. Although there remains some debate among economists about how to analyze
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