Ebook Microeconomics - Principles and applications (6/E): Part 2
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Ebook Microeconomics - Principles and applications (6/E): Part 2
CHAPTERi2I The ClassicalKj Long-Run ModelIIAS we’ve discussed in previous chapters, economists often disagree with each other. In interviews, editoria Ebook Microeconomics - Principles and applications (6/E): Part 2als, and blog posts, they make opposing recommendations about matters of great importance to the nation's economy. To the casual observer, It might seem that economists agree on very little about how the economy works. But looking closer, we often find that a seemingly positive disagreement is based Ebook Microeconomics - Principles and applications (6/E): Part 2 on a hidden normative disagreement.Consider the controversy surrounding the American Recovery and Reinvestment Act of 2009, the government’s first maEbook Microeconomics - Principles and applications (6/E): Part 2
jor attempt to help the economy recover from the financial crisis and recession of 2008. The Act enabled the government to borrow an additional $787 bCHAPTERi2I The ClassicalKj Long-Run ModelIIAS we’ve discussed in previous chapters, economists often disagree with each other. In interviews, editoria Ebook Microeconomics - Principles and applications (6/E): Part 2ects of the policy: whether or not tax cuts and spending increases were properly proportioned, their timing, the microeconomic details, the wisdom of expanding governments role in the economy, and more. But one of the most heated arguments concerned whether or not government spending—if financed by Ebook Microeconomics - Principles and applications (6/E): Part 2government borrowing—could help the economy.On one side were economists who argued that such policies would worsen the economy’s performance and lowerEbook Microeconomics - Principles and applications (6/E): Part 2
U.S. living standards. On the other side were those who argued the opposite: The policy would improve the economy’s performance and failing to enact CHAPTERi2I The ClassicalKj Long-Run ModelIIAS we’ve discussed in previous chapters, economists often disagree with each other. In interviews, editoria Ebook Microeconomics - Principles and applications (6/E): Part 2next several chapters.) Which side was right?Surprisingly, it’s possible that both sides were right. But how can this be? Aren't the two arguments mutually exclusive? Not necessarily. Economists on each side might have been thinking about—and addressing—a different question. Many of those who oppose Ebook Microeconomics - Principles and applications (6/E): Part 2d the policy were focusing on the expected long-run effects of government borrowing: the impact we’d begin to observe after several years had passed.Ebook Microeconomics - Principles and applications (6/E): Part 2
Those in favor generally focused on the short-run effects of government spending: the impact expected over the next year or two. How to weigh the longCHAPTERi2I The ClassicalKj Long-Run ModelIIAS we’ve discussed in previous chapters, economists often disagree with each other. In interviews, editoria Ebook Microeconomics - Principles and applications (6/E): Part 2each of these time horizons. But even with complete agreement about the positive questions, there would still have been a major dispute over whether the short run or the long run should take priority in guiding the economy.Ideally, we would like our economy to do well in both the long run and the sh Ebook Microeconomics - Principles and applications (6/E): Part 2ort run. Unfortunately, there is often a tradeoff between these two goals: Doing better in the short run can require some sacrifice of long-run goals,Ebook Microeconomics - Principles and applications (6/E): Part 2
and vice versa. The problem19®www.downloadslide.net200 Part IV:Long-Run MxroecononwsFIGURE I I U.S. Real GDP. 1820-2010 (Logarithmic Scale)Real GDP (CHAPTERi2I The ClassicalKj Long-Run ModelIIAS we’ve discussed in previous chapters, economists often disagree with each other. In interviews, editoria Ebook Microeconomics - Principles and applications (6/E): Part 2rny Database.Note: Data for 1820 to 1870 K nterpdated between decades, her.ee the smoother appearance for those yearsIn 1936, in the midst of the Great Depression, the British economist John Maynard Keynes offered an explanation for the economy’s poor performance. His new model of the economy—soon d Ebook Microeconomics - Principles and applications (6/E): Part 2ubbed the Keynesian model—changed many economists' thinking.1 Keynes and his followers argued that, while the classical model might explain the economEbook Microeconomics - Principles and applications (6/E): Part 2
y’s operation in the long run. (he long run could be a very long lime in arriving. In the meantime, production could be stuck below its potential, as CHAPTERi2I The ClassicalKj Long-Run ModelIIAS we’ve discussed in previous chapters, economists often disagree with each other. In interviews, editoria Ebook Microeconomics - Principles and applications (6/E): Part 2950s. By the mid 1960s, the entire profession had been won over: Macroeconomics MW Keynesian economics, and the classical model was removed from virtually all introductory economics textbooks. You might he wondering, then, why we arc bothering with the classical model here. After all, isn’t it an ol Ebook Microeconomics - Principles and applications (6/E): Part 2der model of rhe economy, one that was largely discredited and replaced, just as the Ptolemaic view that rhe sun circled the earth was supplanted by tEbook Microeconomics - Principles and applications (6/E): Part 2
he more modern, Copernican view? Nor at all.Why lhe Classical Model Is Importantrhe classical model retains its importance for two reasons. First, oveCHAPTERi2I The ClassicalKj Long-Run ModelIIAS we’ve discussed in previous chapters, economists often disagree with each other. In interviews, editoria Ebook Microeconomics - Principles and applications (6/E): Part 2ted in his book "rtr Genera/ Ifjcitry of Employment, Interest Mtd Money 11936). Unfortunately, it’s a wry difficult book to read, though you may want to try. Keynes’s assumptions were nor always clear, and some of his text is open ro multiple interpretations. As a result, economists have been arguin Ebook Microeconomics - Principles and applications (6/E): Part 2g for drvadcs about what Keynes really meant.www.downloadslide.netOupter 8 The Classical Long-Run Model 201understanding the macroeconomy. Many of theEbook Microeconomics - Principles and applications (6/E): Part 2
counterrevolutionary new theories are based largely on classical ideas. By studying classical macroeconomics, you will be better prepared to understaCHAPTERi2I The ClassicalKj Long-Run ModelIIAS we’ve discussed in previous chapters, economists often disagree with each other. In interviews, editoria Ebook Microeconomics - Principles and applications (6/E): Part 2emains the best model for understanding the economy over the long run. Even the many economists who find the classical model inadequate for understanding the economy in the short run find it extremely useful in analyzing the economy in the long run.Keynes’s ideas and their further development help U Ebook Microeconomics - Principles and applications (6/E): Part 2S understand economic fluctuations—movements in output around its long-run trend. But the classical model has proven more usef ul in explaining the loEbook Microeconomics - Principles and applications (6/E): Part 2
ng-run trend itself.This is why we will use the terms “classical view” and “long-run view” interchangeably in the rest of the book; in either case, weCHAPTERi2I The ClassicalKj Long-Run ModelIIAS we’ve discussed in previous chapters, economists often disagree with each other. In interviews, editoria Ebook Microeconomics - Principles and applications (6/E): Part 2t all models begin with assumptions about the world. The classical model is no exception. Many of its assumptions arc simplifying: they make the model more manageable, enabling US to sec the broad outlines of economic behavior without getting lost in the details. Typically, these assumptions involve Ebook Microeconomics - Principles and applications (6/E): Part 2 aggregation. We combine the many different interest rates in the economy and refer to a single interest rate. We combine the many different types ofEbook Microeconomics - Principles and applications (6/E): Part 2
labor in the economy into a single aggregate labor market. These simplifications are usually harmless: Adding more detail would make our work more difCHAPTERi2I The ClassicalKj Long-Run ModelIIAS we’ve discussed in previous chapters, economists often disagree with each other. In interviews, editoria Ebook Microeconomics - Principles and applications (6/E): Part 2in the classical model that goes beyond mere simplification. This is an assumption about how the world works, and it is critical to the conclusions we will reach in this and the next chapter. We can state it in two words: Markets clear.A critical assumption in the classical model is that markets cle Ebook Microeconomics - Principles and applications (6/E): Part 2ar: The price in every market will adjust until quantity supplied and quantity demanded are equal.CHAPTERi2I The ClassicalKj Long-Run ModelIIAS we’ve discussed in previous chapters, economists often disagree with each other. In interviews, editoriaCHAPTERi2I The ClassicalKj Long-Run ModelIIAS we’ve discussed in previous chapters, economists often disagree with each other. In interviews, editoriaGọi ngay
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