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Transcript

  • 1. 8.5: Some final observations Chapter 8: Aggregate demand and aggregate supply
  • 2. CONTENT
    • Business cycle and government policies in neoclassical and Keynesian perspectives.
  • 3. NEOCLASSICAL PERSPECTIVES
    • The economy is a stable system where it trends toward long-run equilibrium (full employment).
  • 4.
    • Still, in short-run, economy can fluctuate (recessionary and inflationary gap).
    • But the trend is still go back to the equilibrium withouth government’s intervention.
  • 5.
    • Therefore in short-run, government should encourage competetion so that resource and prices can be influenced by price mechanism (demand and supply).
    • It means to allow the economy to automatically shift back to equilibrium.
  • 6.
    • Now the aim of neoclassical economists is to achieve economic growth in long run.
    • So they should apply supply-side policies to increase the long-run supply.
  • 7. Keynesian perspective
    • The economy is an unstable system where short-term fluctuation cannot automatically correct themselves.
  • 8.
    • Therefore government must actively use policies to influence aggregate demand.
    • For example, during recessionary gap, government must use policy to boost the aggregate demand.
  • 9.
    • If there are no intervention done by the government, the economy will remain stuck at prolonged low levels of GDP and high unemployment.
    • Inflationary gap happens only when the aggregate demand curve is increased to the upward sloping and vertical portion of the Keynesian aggregate supply.