by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What is Government Borrowing?When governments are borrowers in financial markets, there are three possible sources for the funds from a macroeconomic point of view: (1) households might save more; (2) private firms might borrow less; and (3) the additional funds for...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
How does Discretionary Fiscal Policy affect Interest Rates? Because fiscal policy affects the quantity that the government borrows in financial capital markets, it not only affects aggregate demand—it can also affect interest rates. In the chart below, the original...
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...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What are Keynesian vs Neoclassical Macroeconomic Policy Recommendations? Let’s summarize what neoclassical economists recommend for macroeconomic policy. Neoclassical economists do not believe in “fine tuning” the economy. They believe that a stable economic...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What is the Neoclassical View of Recessions? Neoclassical economists believe that the economy will rebound out of a recession or eventually contract during an expansion because prices and wage rates are flexible and will adjust either upward or downward to restore the...
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...
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
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
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
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...
