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...
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...
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...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
Why and how do economists measure inflation expectations? People take expectations about inflation into consideration every time they make a major purchase, such as a house or a car. As inflation fluctuates, so too does the nominal interest rate on loans to buy these...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What is the Neoclassical Phillips Curve Tradeoff? The short run upward sloping aggregate supply curve implies a downward sloping Phillips curve; thus, there is a tradeoff between inflation and unemployment in the short run. By contrast, a neoclassical long-run...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What is the Neoclassical View of Unemployment? Economists divide unemployment into two categories: cyclical unemployment and the natural rate of unemployment, which is the sum of frictional and structural unemployment. Cyclical unemployment results from fluctuations...
