6

Gali's Monetary Policy, Inflation, and the Business Cycle: An Introduction to the New Keynesian Framework, provides an advanced undergraduate / first-year graduate student introduction to these models, and I'd recommend it for self studies. According to chapter 1, available online, which offers an overview of the New Keynesian Model, the key elements are: ...


5

Material capital is any durable good that is used as a factor of production and, by virtue of being durable, it is gradually consumed in production over a maximum possible duration of a length that is determined by (i) how much a unit of capital is used and (ii) the depreciation rate of a unit of capital. Capital forms by labor and savings (which is in ...


4

The increase in interest rates make borrowing more expensive and therefore businesses and people will borrow less. Therefore, investment and consumption decrease. Through the multiplier effects, this will cause a reduction in real GDP. This will also increase the unemployment rate. Therefore, people who sell these goods and services will reduce their prices. ...


4

In what follows, I'm going to be very hand wavy - take with a grain of salt. If you think about it, a demand shock is like a scenario of multiple equilibria (given the fixed levels of wages and prices): If everyone is employed, everyone has a lot of income, can spend that on goods, and the demand for goods implies a large demand for labor, making everyone ...


4

In the classical model, aggregate supply curve is vertical (price level on the y axis), meaning that output is fixed, constrained by technology and inputs. Prices are flexible. So that if the demand curve changes, the effect will be entirely on price level and not on output. In the keynesian model, aggregate supply curve is horizontal at some price level. ...


4

The investment ($I$) equals savings ($S$) result is derived by Keynes just from national identity, as a result it just hold by definition. Keynes in the passage starts with the simplified version of national identity that omits government. That is: $$Y=C+I \implies I=Y-C$$ And simply solves it for investment. The solution of investment tells us that private ...


3

Capitalism is not well-defined in economics. In most economic textbooks the word capitalism is not even printed. However, according to dictionary (Merriam-Webster) definition: an economic system characterized by private or corporate ownership of capital goods, by investments that are determined by private decision, and by prices, production, and the ...


3

In the standard LM Model money supply is a vertical line and money demand is a decreasing function (in the interest rate - money framework). An increase in the money supply curve shifts the supply curve to the right which ceteris paribus decreases the intersect with the demand curve which leads to a lower interest rate.


3

Yes, the big success of Keynesianism was uncovering that there is an incentive to invest in a demand-led recession, from the perspective of the whole economy, because of the multiplier. Just as you say. However, there is no incentive to invest for individual profit-maximising firms, for exactly the reason dismalscience gives: the investment stimulates ...


3

Aggregate supply is a relationship of price level and output. It is a function, or a curve, or a table. It is not a single value. If we know a particular price level, then we can determine the level of output that would correspond with that. The GDP for 2006 is determined by plugging in the price level of 2006 to the AS curve for 2006, and seeing what output ...


3

I will try to answer this question although it is rather hard using only one paragraph, if not impossible. A paragraph explaining what New-Keynesian Economics is: Models explaining price and wage stickiness using rational expectations and utility maximizing behaviour. See Gordon, R.J, 1990 for more details. For a defining equation the New-Keynesian ...


3

The division comes from the entities guiding these sets of policies. The austerity program falls under fiscal policy, which is controlled by Parliament. Quantitative easing falls under monetary policy, which is controlled by the Bank of England. The policies enacted by these two entities are not necessarily coordinated, and can sometimes work opposite each ...


2

There is a huge discussion about structural Macroeconomics models - especially on their theoretical and practical relevance - with IS-LM being on the forefront of the battle some 40+ years ago. Many people simply reject LM existence. Advanced level textbooks ignore this approach for two decades. However it ironically dominates introductory courses. Here is ...


2

For most people consumption does not equal income. Many consume less (they save) and others consume more (they take on debt) than they earn. In an economy with financial markets and heterogeneous consumers, discounted lifetime income should equal discounted lifetime consumption, but there is no reason why consumption should equal income at every point in ...


2

If you enjoy ethical and philosophical aspects, you should look into international aid and intervention. Check out "Adaptive Preferences and Women's Empowerment" by Khader and work by Nussbaum in regards to social justice. These are some great texts coming off of reading Hayek. If you aren't familiar with the concept of adaptive preferences, it is the idea ...


2

tl;dr: R&D spending cannot stimulate economy during just by increasing long-run aggregate supply because recessions are fluctuations around the long-run aggregate supply and not necessary affected by the long-run aggregate supply. A in which spending on R&D in principle could be more effective in fighting recessions than other spending. The ...


2

From a Marxist perspective, capital is a social relation. Essentially, it is money that begets more money. As such, it only becomes more or less synonim with "means of production" once it takes over production, ie, once society becomes capitalist. In a feudal society, tools and land are not capital, albeit being means of production. The money of money ...


2

Your question includes a flawed assumption: why would you assume that you'd recapture any significant portion of the additional output? Let's say that the multiplier is .05, so that for your billion dollar investment (let's say the you build a new factory), others in the city increase their total spending by \$50 million. What fraction of that \$50 million ...


2

There are two different way to present the IS-LM model, one with a vertical money supply line, and one with a horizontal interest rate line. Consider the second one, as it represents better what central banks actually do nowadays. If the r goes up, this means the central bank has increased its benchmark interest rate (it can mean a host of other things, but ...


2

Demand side effects: Effects to the economy whenever the demand-side factors (the components of GDP [in the abstracts case, Government spending]) either increases or decreases. Demand AD (GDP) = C + I + G +X-M https://www.economicshelp.org/blog/2671/economics/factors-affecting-economic-growth/


2

You can use some some initial $Y_0$ to find an interest rate, but this is precisely the indeterminacy problem. We would like to be able to derive the equilibrium interest rate without assuming some initial values. Furthermore, note the indeterminacy problem is actually present even in canonical Keynesian models (See Hansen, 1951) and Neo-Keynesian models (...


2

An excellent overview of not just monetarist view on this issue but all other mainstream views on monetary policy at zero lower bound (ZLB) can be found in Ullersma (2002) The Zero Lower Bound on Nominal Interest Rates and Monetary Policy Effectiveness: a Survey - which is an excellent literature review on this subject (albeit slightly dated). In short, ...


1

The issue is more complex than your friend suggest and he is not completely right but at the same time there is a kernel of truth to what he is claiming. There are differences in the effect of savings short and medium and long run. However, to fully explain this I will have to use some math to ground the reasoning and make everything consistent. Consider ...


1

The fiscal multiplier in (iv) would arise from $$ Y = C+I+G$$ $$ Y = a + c(Y-T)-d\alpha Y +G+I.$$ This can be rearranged as $$Y(1-c+d\alpha)=a-cT+G+I,$$ and, therefore, the fiscal multiplier would be $$\frac{1}{1-c+d\alpha}.$$ In order for this to equal $1$, you just need $d\alpha=c.$ Note that setting $d\alpha=c$ in your "multiplier" does not yield ...


1

Explaining the shape of the horizontal range In the very short run, the AS curve is perfectly price-elastic (i.e. on the diagram, it is a horizontal line). It is also referred to as the Keynesian range. In this time period, firms respond to a rise in demand for their product without considering the effects of the rising demand, such as higher prices. This ...


1

The distinction is between "nominal" and "real" recessions and booms. Real business cycle theory was developed to point out the fact that variations in employment and hours could occur even in an economy where markets were working competitively and there were no pricing frictions. In the RBC world, recessions and booms are driven by "real" factors: ...


1

'Universal basic income' has largely been in the public dialogue, to counter the negative consequences of automation - or some other reasons for mass unemployment. In such a context, it is proposed as a last resort if there is an extreme decline in Labour demand. It can however, be used as an alternative to basic unemployment benefits, or to simply combat ...


1

First, we should remember that the government did not particularly spend any money on the air strike, except for incidental stuff like fuel costs. It already owned those missiles, which were part of a previous government spending program. Unlike profit-motive organizations that try to be streamlined, the government buys many things it never uses and doesn'...


1

Your method is correct. This however does not have to be the case in general. Your have a budget surplus simply because your government spending does not rise too much relative to your tax revenue collection. Consider the following with MPC = 0.3, t = 0.2 and Y = 1000 and dt = 0.5: If you increase spending too much, you will end up with a budget deficit. ...


1

I cannot see any way to have negative autonomous consumption. I believe autonomous consumption's extreme is zero if there's a kind of superheroes who don't need water, electricity and food to live and they save everything they earn. But in a case like this, there's no reason for having aggregate supply at all as nobody will buy the goods in first place.


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