ECON1131 Lecture Notes - Lecture 20: Deflation
5 Dec 2017
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Krugman for ap module 20 fiscal policy basics notes. Change in ad won"t change output even in the short run because prices of resources (wages) are very flexible. As is vertical so ad can"t increase without causing inflation. A decrease in ad will lead to a persistent recession because prices of resources (wages) are not flexible. Increase in ad during a recession puts no pressure on prices. Cost of resources (especially labor) don"t often fall because: If prices fall, the cost of resources must fall or firms go out of business. Wage decrease results in poor worker morale. Firms must pay to change prices (ex: re-pricing items in inventory, advertising new prices to consumers, etc. ) Social insurance programs are government programs intended to protect families against economic hardship. Either decrease government spending or enact tax increases. Laws that reduce unemployment and increase gdp. Increase government spending or decrease taxes on consumers. Some economists argue against active stabilization policy.
