ECON 144 Lecture Notes - Lecture 4: Herd Mentality, Monetary Policy, Business Cycle
Document Summary
Different (cid:1688)schools(cid:1689) or (cid:1688)philosophies(cid:1689) of macroeconomics: (cid:1688)classical economists - absolutely believe in the self-correcting mechanism. Increases in the money supply lead to inflation, and that"s all. The adjustment happens so fast they assume the sras curve is vertical. It"s so fast don"t worry about the short run: keynesian economists. The (cid:1688)short run(cid:1689) can last a lot longer than you think so you cant ignore it. Vertical: aggregate price level horizontal: real gdp. We can be in a bad spot for a long time. Two major concepts: when the economy is in a bad place, somebody should do something to make things better = macroeconomic policy activism (the use of monetary and fiscal policy to smooth out the business cycle) Congress cutting taxes is not an example of this: animal spirits = business confidence, and the fact that people have a (cid:1688)herd mentality(cid:1689) and react to how they perceive things and feel about things.
