Chapter 13 summary and notes

, &
'Stuck Price' Model
x VIP assumptions >
-

prices are fixed ③ Current Relevance
version
aggregate expenditures model aggregate expenditures
X the extreme - the model still
,
of sticky-price model.
relevant
today
in modern economy
X Keynes made assumption bes prices not declined
=> bes
many prices
sufficiently during Great Depression to boast inflexible downward over short periods
spending & maintain output 3 employment time
↳ theories before GD predicted prices fall to equate
=> of it helps us understand how
quantity supplied3 demanded .
modern
↳ prices didn't actually
fal,
the economy sank below
l economic economy likely adjusta

potential output .




-



appl unemployment ↑




③is
a

Capital
unplanned
panned
due
Inventory
Keynes thought unemployment
firms reacting predictable
increase in inventory levels
labour B
⑭tions
way
to
cation

X firms stock up inventory ,
think rapid future sales
op
decrease inventory levels if think
intentionally
demand decrease in future
>
-
sometimes the opposite happens.
X During Great Depression :



households businesses reduced spending

3 aggregat
·




=> caused unsold inventory surge etes
=> this reduced rates production
greatly model
=> some factories shutdown
=> increased
unemployment