Chapter27 Additional Insights

Chapter27 Additional Insights - Chapter 27: Aggregate...

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Chapter 27: Aggregate Demand/Aggregate Supply Model In this chapter, we apply the concepts of demand and supply to the aggregate market. That is, we apply market analysis to an entire economy. Recall that the fundamental adjustment mechanism in a market is prices. There are a few nuances and assumptions that economists make in trying to explain aggregate behavioral interactions between consumers, producers, government, and the international sector. I will highlight them in these notes. There are two fundamental schools of thought that have become the mainstream theories for explaining aggregate economic behavior: o Classical Approach o Keynesian Approach These are theories that attempt to explain how society makes economic decisions and how the participants interact with each other in an aggregate context. Neither is right or wrong…each is just trying to provide an explanation that is useful to policymakers and interested parties. While these two schools of thought provide the two mainstream foundations, most “modern” economists are probably somewhere in between in that they adhere to elements of both theories. As you learn about the two schools of thought, you will probably notice that in the realm of “modern” politics, Republicans tend to be more “Classical” and Democrats tend to be more “Keynesian”. Classical Approach: The Classical approach stems from the thoughts of Adam Smith. He believed that a free market (in which prices reflect our individual values and market forces be allowed
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This note was uploaded on 12/03/2011 for the course ECON 101 taught by Professor Smith during the Fall '11 term at North Shore Community College.

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Chapter27 Additional Insights - Chapter 27: Aggregate...

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