Defining Money by Its Functions
Learning Objectives By the end of this section, you will be able to: Money for the sake of money is not an end in itself. You cannot eat dollar bills or wear your bank account. Ultimately, the usefulness of money…
Introduction to Money and Banking
Figure 14.1 Cowrie Shell or Money? Is this an image of a cowrie shell or money? The answer is: Both. For centuries, people used the extremely durable cowrie shell as a medium of exchange in various parts of the world. (Credit: modification of…
Summary
13.1 The Building Blocks of Neoclassical Analysis The neoclassical perspective argues that, in the long run, the economy will adjust back to its potential GDP level of output through flexible price levels. Thus, the neoclassical perspective views the long-run AS curve…
Balancing Keynesian and Neoclassical Models
Learning Objectives By the end of this section, you will be able to: We can compare finding the balance between Keynesian and Neoclassical models to the challenge of riding two horses simultaneously. When a circus performer stands on two horses,…
The Building Blocks of Neoclassical Analysis
Learning Objectives By the end of this section, you will be able to: The neoclassical perspective on macroeconomics holds that, in the long run, the economy will fluctuate around its potential GDP and its natural rate of unemployment. This chapter begins with…
Introduction to the Neoclassical Perspective
Figure 13.1 Impact of the Great Recession We can see the impact of the Great Recession in many areas of the economy that impact our daily lives. One of the most visible signs was in the housing market where many people were forced…
Summary
12.1 Aggregate Demand in Keynesian Analysis Aggregate demand is the sum of four components: consumption, investment, government spending, and net exports. Consumption will change for a number of reasons, including movements in income, taxes, expectations about future income, and changes in…
The Keynesian Perspective on Market Forces
Learning Objectives By the end of this section, you will be able to: Ever since the birth of Keynesian economics in the 1930s, controversy has simmered over the extent to which government should play an active role in managing the…
The Phillips Curve
Learning Objectives By the end of this section, you will be able to: The simplified AD/AS model that we have used so far is fully consistent with Keynes’s original model. More recent research, though, has indicated that in the real…
The Building Blocks of Keynesian Analysis
Learning Objectives By the end of this section, you will be able to: Now that we have a clear understanding of what constitutes aggregate demand, we return to the Keynesian argument using the model of aggregate demand/aggregate supply (AD/AS). (For…