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Effect of Recurring Large Deficits

by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy

What are the risks of chronic large deficits in the United States? If a government runs large budget deficits for a sustained period of time, what can go wrong? According to a recent Brookings Institution report, a key risk of a large budget deficit is that government...

Prices are Flexible in the Long Run

by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy

Why are Prices are Flexible in the Long Run? How does the macroeconomy adjust back to its level of potential GDP in the long run? What if aggregate demand increases or decreases? Economists base the neoclassical view of how the macroeconomy adjusts on the insight that...

NeoClassical and Keynesian View of Long-Run Aggregate Supply and Demand

by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy

What are the NeoClassical and Keynesian View of Long-Run Aggregate Supply and Demand? The aggregate demand and aggregate supply diagram shows two aggregate supply curves. We draw the original upward sloping aggregate supply curve (SRAS0) is a short-run or Keynesian AS...

Adjustment of Wages and Prices in Macroeconomy

by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy

How quickly do wages and prices adjust in the Macroeconomic environment? How long does it take for wages and prices to adjust, and for the economy to rebound to its potential GDP? This subject is highly contentious. Keynesian economists argue that if the adjustment...

Government Spending – Explained

by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy

What is Government Spending? Government spending covers a range of services that the federal, state, and local governments provide. What is a Budget Deficit and Surplus? When the federal government spends more money than it receives in taxes in a given year, it runs a...
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