Re: Re: AS/AD

[Brad De Long <delong@xxxxxxxxxxxxxxxxx>]

> Barkley wrote:
> > ... Let me mention one more aspect of this that may extend beyond
> > just the confines of the principles of econ class.  If you
> > were following at all closely you may noticed me making a big deal
> > about whether books were using a vertical AS curve or not.
> > This assumption, increasingly widespread in the texts, does have a
> > very strong ideological content.
>
> My impression (which is not based on a statistical sample, BTW) is
> that fewer & fewer textbooks have a vertical AS curve, except in the
> long run. New classical economics and supply-side economics are not
> very popular these days (except in attenuated forms) while most
> textbook-writers want to sell books and so want to tell (new)
> Keynesian stories about business cycles (with an upward-sloping
> short-run AS curve).
>
> The key classical assumption that pervades economics (and,
> seemingly, Al Gore's mind) is not the assumption of continuous full
> employment but rather the version of Say's Law that says that
> increased saving (nowadays in the form of an increased government
> budget surplus) leads to increased investment.


...Because the Federal Reserve makes it so: the Federal Reserve
targets the unemployment rate and acts inside the decision cycle of
the fiscal authorities.

If you're in a liquidity trap, or your central bank is headed by
potted plants or madmen, then things are very different. (At least,
that's the way I teach it.)


Brad DeLong