EC1301_-_Lecture_11-_Economic_Policy_and_the_Speed_of_Adjustment

EC1301_-_Lecture_11-_Economic_Policy_and_the_Speed_of_Adjustment

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1 EC1301 From the Short Run to the Long Run © Connie CHUNG  LECTURE 11 ECONOMIC POLICY  AND THE SPEED OF ADJUSTMENT 
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2 EC1301 From the Short Run to the Long Run © Connie CHUNG  Agenda The Difference Between the Short and Long Run Wages and Prices and Their Adjustment Over Time How Wage and Price Changes Move the Economy Naturally Back  to Full Employment How Economic Policy Can Hasten the Speed of Adjustment (eg.  using either fiscal policy or monetary policy) Behind the Adjustment Process The Long-Run Neutrality of Money  Crowding Out in the Long Run  Classical   versus   Keynesian in  Macroeconomic Demand  Management     
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3 EC1301 From the Short Run to the Long Run © Connie CHUNG  Objectives 1. Explains how the economy makes the  transition  from the short run to the long run 2. Highlights why monetary and fiscal policies  have effects different in the short run than in  the long run   3. Helps us understand why distinction  between  the short run and the long run is critical  to  evaluating economic policy
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4 EC1301 From the Short Run to the Long Run © Connie CHUNG  Applying the Concepts 1. What went wrong for the Japanese economy  during its decade-long economic downturn?  ( Japan’s Lost Decade) 2. What are the links between elections and  macroeconomic performance? 3. What explained the decision by the Japanese  government to increase taxes in the 1990s  when the economy was still suffering from a  recession?
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5 EC1301 From the Short Run to the Long Run © Connie CHUNG  Key Terms aggregate demand curve  crowding out liquidity trap long-run aggregate supply curve  long-run neutrality of money   political business cycle  short-run aggregate supply curve wage-price spiral the adjustment process
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6 EC1301 From the Short Run to the Long Run © Connie CHUNG  What is the Difference between the Short and Long Run  in Macroeconomics? In the  short  run :  Wages and prices are  sticky  Short-run analysis applies to the period of       time when wages and prices do not     change—at least not substantially  The level of GDP is determined by the         current demand for goods and services   Monetary and fiscal policies can have an          impact on demand and GDP
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7 EC1301 From the Short Run to the Long Run © Connie CHUNG  .....  the Short and Long Run  in Macroeconomics …. .
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This note was uploaded on 03/19/2012 for the course ARTS EC1301 taught by Professor Forgot during the Fall '08 term at National University of Singapore.

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EC1301_-_Lecture_11-_Economic_Policy_and_the_Speed_of_Adjustment

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