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Macroeconomics, Screen Shot 2022-02-21 at 13.35.23, descarga (1), descarga…

- - - - Cured through
        Interventionist: Education, training programs, subsidies to firms that provide training, job centers providing information about available jobs.
        Market-based: Lower unemployment benefits to incentivize the labor force to work. Deregulation of the labor market to reduce obstacles for firms, increasing hiring.
- - - - Increase aggregate demand may cause the bank to lower the base rate of interest, which will reduce the cost of borrowing and there might be an increase in both consumption and investment.
      - Expansionary fiscal policy is everything dealing with money and interest rates. Increasing the supply of money would lower its price.
    - - policy that is intended to reduce the rate of monetary expansion to fight inflation.
      - The policy reduces the money supply in the economy to prevent excessive speculation and unsustainable capital investment.
  - - - The real interest rate= nominal rate- inflation rate
      - Rate of interest which is adjusted for inflation.
    - - rate of interests abailable in the money market, not allowing inflation.
- - - - Phase 2: The economy's available factors of production become scarce. Bids for the increasingly scarce factor.
      - Phase 3: economy reaches its full capacity. It is impossible to increase output any further.
      - Phase 1: Perfectly elastic
  - - - Change in wage rates: increasing the wages will increase costs and therefore, will decrease the aggregate supply.
      - Change in cost of raw material: while costs are lower, production can be more and therefore, more supply will be available.
      - Price of imports: if raw materials are imported, then production prices are higher and supply is less.
      - Government's indirect taxes and subsidies: when government uses indirect taxes or subsidies, they are boosting production.
- - - - Assumptions: government role is not important in filing employment gaps. They believe that leaving the economy to market forces rather than using government policies is better to manage aggregate demand.
      - implications: An increase in the money supply will lead to overall price increases in the economy.
    - - implications: income and employment depends directly on on the aggregate demand. If there is not enough demand, there is not enough employment.
      - assumptions: demand creates its own supply, the aggregate price level remains fixed. This means that all variables are real variables and all changes are in real terms. Lastly, Keynesians believe that wages will not affect the firms nor the employee performance.