{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Ch.23_Spending_in_Short_Run

Ch.23_Spending_in_Short_Run - Ch 23 Spending and Output in...

Info icon This preview shows pages 1–5. Sign up to view the full content.

View Full Document Right Arrow Icon
1 Ch. 23 Spending and Output in the Short-Run I. Overview We will now develop a model that can capture the short-run fluctuations in the economy. I will depart significantly from the book. Neoclassical economists believe that all fluctuations in output are fluctuations in potential GDP. Thus, they don’t think you need a separate model for the short-run. (Builds on Classical view of Adam Smith, David Ricardo, etc.) Keynesian economists believe that output often deviates from potential GDP because of market imperfections such as sticky prices . The model we will study in this chapter is a Keynesian model. The Keynesian model is the one that most policy makers and Wall Street professionals have in their heads. It led the government to spend $780 billion on a stimulus package.
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
2 I. Overview (cont.) In the Keynesian model, the economy goes into a recession not because the economy has less ability to produce, but because there is insufficient spending. According to this model, output in the short-run is determined by spending, not productive capacity. Thus, a decline in spending can make the economy go into a recession.
Image of page 2
3 II. Key Assumptions of Keynesian Model of Aggregate Expenditure
Image of page 3

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

View Full Document Right Arrow Icon
4 III. Planned Aggregate Expenditures (PAE)
Image of page 4
Image of page 5
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