AS.180.101 Lecture Notes - Lecture 5: Inventory Investment, Microeconomics, Nuance Communications
Document Summary
Lecture #6: the aggregate expenditure model (a stylized look at business cycle dynamics) Fed wants to slow the purchase of bonds so they are tapering interest rates. Fed wants to keep economy growing, only so much as to not cause inflation. Fed wants to drive the bus (the economy) as fast as they can, so that as many people can get jobs: risk is driving faster than potentials and we have inflationary pressures, which are not good! Hawk wants to raise rates and tighten/constrain. Dove wants to keep rates easy, the same. This is our first of 3 economic models. Ae model tries to explain why supply doesn"t equal demand at all moments. We embrace a key insight from microeconomic theory adam smith. The aggregate expenditure model: a super simple picture. But the future is uncertain: people respond to what they think it going to happen. In the ae model, when plans (expectations) go awry, inventories are the buffer.
