Aggregate activity and demand: Competing theories about short-run instability

4.4 Competing theories about short-run instability

Activities

New World Encyclopedia: "Keynes and Classical Economics"

• Read this article for more information about these competing perspectives. This section contains four subsections: "Wages and Spending,” "Excessive Saving and Interest Rates,” "Active Fiscal Policy,” and "Multiplier Effect.” Focus your attention on the portions within the four subsections that emphasize the short-run. You may observe that the differences among the various subsections tend to deal with the underlying nature of change.

4.4.1 Demand-side theories

Activities

Wikipedia: "Keynesian Economics"

• Read this article, which covers several aspects of contemporary macroeconomic thinking. Note the emphasis on managing aggregate demand by changing variables that can alter aggregate expenditures. Some economists argue it is easier and better to prompt changes in consumption, investment, government spending, and net exports than to prompt changes in variables that affect aggregate supply.

4.4.2 Supply-side theories

Activities

Wikipedia: "Supply Side Economics"

• Read this article, which covers several aspects of contemporary macroeconomic thinking. Note the emphasis on managing aggregate supply by changing variables including tax rates, deregulating industries, providing incentives for employers to hire workers, and so forth. Some economists argue it is easier and better to prompt changes in the supply side than to prompt changes in variables that affect aggregate demand.