Lessons from Recent Macroeconomic Policy Making
This book lays out the distinction between long-run and short-run causes of low-employment equilibrium. The long-run causes are distortions in the price system that reduce aggregate supply. The short-run causes are price and wage rigidities that bring about divergences between aggregate demand and aggregate supply, sometimes leading to a need for corrective stabilization policies by government.
There are two features of this distinction that cause concern. First, economists typically see the short-run problem as an excess of supply over demand. If the problem is excess supply, as in the Keynesian scenario, the appropriate remedy lies in expansive monetary and fiscal policy. In fact, however, ...
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