ECO 200 Study Guide - Final Guide: Reserve Requirement, Federal Funds Rate, Aggregate Demand
Document Summary
Macro economic models and presidential economics: classical. There is a natural order to the business cycle. The economy has always come back from recession. If recession happens, wages, and prices fall, cheaper labor hired, cheaper output bought. If consumption falls there is a surplus of savings which will be corrected by falling interest rates and increasing investment. The economy adjusts to full employment output in the long run by falling wages, prices, and interest rates. To promote a sound recovery the economy must purge itself of failing firms who made poor investments or ran their firm inefficiently. Recessions are temporary and painful but they do eliminate failing firms which in the long run will be good for the economy. Economist: adam smith and john say: keynes. It may reach an equilibrium output which is less than full employment output and stay in a depression without government intervention such as fiscal and or monetary policy.
