Lecture 23 Slides Long

Reich p 32 diculees 1 low consumpeon hasnt

Info iconThis preview shows page 1. Sign up to view the full content.

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

Unformatted text preview: f inequality cause recessions and crises. Idea #1 Because the rich spend a smaller fracEon of their income than the poor, inequality leads to inadequate aggregate demand. “When income is concentrated in relaEvely few hands, the overall demand for goods and services shrinks because the very rich do not nearly spend everything they earn.” (Reich, p. 32) DifficulEes 1. Low consumpEon hasn’t been a big problem in the U.S. in recent decades! DifficulEes 2. Shijs of the IS curve will only affect output temporarily. The Short ­Run Effects of a Rise in Inequality the IS ­MP Model r MP0 r0 r1 IS1 Y1 Y0 Y Y IS0 The Effects over Time of a Rise in Inequality the IS ­MP Model r MP0 MP2 r0 r1 r2 IS1 Y1 Y2Y0 Y Y IS0 The Long ­Run Effects of a Rise in Inequality the IS ­MP Model r MP0 MPLR r0 r1 rLR IS1 Y1 Y0,YL R Y Y IS0 The Short ­Run Effects of a Rise in Inequality If the Fed Wants to Offset the Output Effects r MP0 MP1 r0 r1 IS1 Y0,Y1 Y Y IS0 Could Reich’s idea help us understand the weak recovery? When monetary policy is at th...
View Full Document

Ask a homework question - tutors are online