In AA-DD model, we discuss the difference between long run and short run. Discuss why is it necessary to make such differentiation? Why on the long run, fiscal and monetary policies are not effective? How does the expected change in prices affect price changes today?

In AA-DD model, we discuss the difference between long run and short run. Discuss why is it necessary to make such differentiation? Why on the long run, fiscal and monetary policies are not effective? How does the expected change in prices affect price changes today?

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter10: Bringing In The Supply Side: Unemployment And Inflation?

Section: Chapter Questions

Problem 1DQ

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Question

Short run vs. Long Run

1. In AA-DD model, we discuss the difference between long run and short run. Discuss why is it necessary to make such differentiation?
2. Why on the long run, fiscal and monetary policies are not effective?
3. How does the expected change in prices affect price changes today?

Definition Definition Policy implemented by the central bank of a country (such as the Federal Reserve in the United States) to achieve certain macroeconomic objectives. Monetary policy is a supply-side macroeconomic policy that supervises the growth rate and money supply in the economy.

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