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Unformatted text preview: at long run equilibrium position which is also at potential. The short run is so short we can ignore it even exists. Economy is at the Natural rate of unemployment, therefore any unemployment that exists is due to the voluntarily unemployed because they don’t want to work. Any voluntary unemployment is temporary. Cycles are self correcting. Demand will always equal supply, just at different prices. Steep, inelastic. Savings and Investment are determined based on disposable income, the desire to save for the future and expected profitability. Flat in the short run, vertical in the long run Unemployment can exist in the form of involuntarily in the short run because of the inflexible wages and prices. The economy can get stuck in the short run position for a substantial amount of time. Business cycles can be long and the economy can get stuck in a slump for long periods of time if the government does not give a helping hand. Monetarists Like classicals, believe in tight monetary policy and maintaining law and order (the only reason to intervene) Flexible prices and wages Like classicals, no fiscal policy, only used before elections Believe...
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This document was uploaded on 02/27/2014.
- Spring '14