Competing theories about short-run instability

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.

Keynes 1933

John Maynard Keynes

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.

Rmundell

Robert Mundell

Artur Laffer

Arthur Laffer

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Supply vs Demand

The economic cycle

Currently the two main competing economic schools of thought are

1. What are the tensions between controlling either inflation or unemployment?
2. Is there an acceptable amount of inflation or unemployment if the economy as a whole is doing well?

• Read Chapter 6: Business Cycle from John Petroff's "Macroeconomics" text book, which provides definition and insights into the key terminology used by economists to describe the stages of the business cycle.

• Read the section on Business Cycle's from the Wikibooks: "Macroeconomics" text book, to learn about the business cycle and the four phases that help define this cycle. Real GDP varies over time, and the business cycle describes the pattern of its fluctuations.

Having read these two chapters, jot down any of your reflections, thoughts or questions on this subject in a WeNotes post.