Demand-Side Stabilization: Overheating, Hard Landing, and Everything in Between
In the previous chapter, we examined the possibility of a shift in the goods market equilibrium from E0 to a higher equilibrium E1, which equated to an equivalent rightward shift in the AD curve. This chapter continues the analysis with a discussion of the specific fiscal and monetary policies by which the aggregate demand (AD) curve can be shifted to enact demand-side stabilization. This will be followed by an in-depth description of overheating, soft-landings, and hard-landings.
In later chapters, we will examine why a significant body of expectations-based research finds demand-side stabilization to be an ineffective policy prescription in some economies since the 1980s.
KeywordsInterest Rate Unemployment Rate Monetary Policy Central Bank Government Spending
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