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...
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
How does Potential GDP affect the Aggregate Demand Aggregate Supply Model? In the aggregate demand/aggregate supply model, we show potential GDP as a vertical line. Neoclassical economists who focus on potential GDP as the primary determinant of real GDP argue that...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
How does Physical Capital Affect Productivity? Physical capital per person refers to the amount and kind of machinery and equipment available to help people get work done. Compare, for example, your productivity in typing a term paper on a typewriter to working on...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What is the Keynesian Perspective on Market Forces? Ever since the birth of Keynesian economics in the 1930s, controversy has simmered over the extent to which government should play an active role in managing the economy. In the aftermath of the human devastation and...
