Chapter 34 talks about how the government’s tools of monetary and fiscal policy influence the position of the aggregate demand curve. I would rate this chapter a difficulty level of 1.5//3. This is because we were already introduced to the aggregate demand curve and its shifts in the previous chapter, and this chapter introduces a few new concepts, but it mostly reinforces my knowledge of the previous chapter in addition to a little more.
The book introduces the role of interest-rate targets and fed policy. Monetary policy can be described either in terms of the money supply or in terms of the interest rate. The Fed can control the money supply or interest rate, but not both. While the recent past has been a period of relative stability, stable interest rates tend to be pro-cyclical rather than counter-cyclical--which should be the focus of macroeconomic policy.
The book introduces two macroeconomic effects that make the size of the shift in aggregate demand differ from the change in G. This is the Multiplier Effect and the Crowding-out Effect. The multiplier effect is the additional shifts in aggregate demand that result when expansionary fiscal policy increase income and thereby increases consumer spending. Crowding effect happens when the offset in AD that results when expansionary fiscal policy raises the interest and thereby reduces investment spending. The multiplier effect is typically negated from the crowding effect.
Thursday, March 23, 2017
Sunday, March 12, 2017
Overall, I would give this chapter a 3/3 in difficulty. There were many new concepts to take in, and I was not able to grasp the majority of them. For example, The Model of Aggregate Demand and Aggregate Supply was confusing for me, and it took a long time for me to finally somewhat understand. All the shifting of capital, natural resources, and so many other factors make this concept extremely hard to memorize. The Long run and short run factors including the SRAS curve make it hard also.
The book introduces The Model of Aggregate Demand and Aggregate Supply. The Model of aggregate demand and aggregate supply is the model that most economists use to explain short-run fluctuations in economic activity around its long-run trend. The Aggregate Demand curve is a curve that shows the quantity of goods and services that households, firms, and the government want to buy at any price level. The Aggregate Supply curve is a curve that shows the quantity of goods and services that firms choose to produce and sell at any price level.
The book then talks about the short run and long run changes and the factors that influence it. Some things that influence the short run are from the shift themselves, and this could be caused by increased pessimism. Also, important ideas to note are that a temporary increase in production costs results in less being produced at each price level--the SRAS curve shifts to the left. Given the negative slope of the AD curve, prices rise and output falls. Gradually, the SRAS curve shifts up as the higher prices are recognized until the economy goes into a new equilibrium at a higher price level.
The book then talks about the short run and long run changes and the factors that influence it. Some things that influence the short run are from the shift themselves, and this could be caused by increased pessimism. Also, important ideas to note are that a temporary increase in production costs results in less being produced at each price level--the SRAS curve shifts to the left. Given the negative slope of the AD curve, prices rise and output falls. Gradually, the SRAS curve shifts up as the higher prices are recognized until the economy goes into a new equilibrium at a higher price level.
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