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Aggregate Demand: Setting the Stage for Demand-Side Stabilization

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Macroeconomic Policy

Part of the book series: Springer Texts in Business and Economics ((STBE))

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  • The original version of this chapter was revised: Figure number 4.9 in page 75, second paragraph, and line 3 has been corrected. The correction to this chapter is available at https://doi.org/10.1007/978-3-319-32854-6_12

Abstract

This chapter marks the first step toward the construction of the ISLM/ADAS model which will power macroeconomic analyses in the chapters to come. At this stage we have completed an intuitive overview of the broad links between global capital flows, fiscal, and trade imbalances, and their effects on interest rates and exchange rates.

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Notes

  1. 1.

    In the following chapter, the concepts of engineering soft-landings for overheated economies, and of jump-starting moribund output will be discussed.

  2. 2.

    We assume here that both axes have the same scale.

  3. 3.

    This classical belief is not nearly as preposterous as it sounds. Their paradigm was successful, well articulated, and did in fact represent the pre-Depression era quite well. It was the paradigm shift ushered in by mistakes made in the Great Depression that rang the death knell of the classical model with its notions of natural rates of employment and output growth; more on this subject in Chap. 9.

  4. 4.

    This included farm workers as well as former employees of state owned enterprises (SOEs).

  5. 5.

    At this stage, we temporarily suppress the term (Exp–Imp) to focus primarily on the closed economy.

  6. 6.

    Changes in wealth holdings will enter our analysis via accompanying changes in confidence. The confidence term acts as a proxy for changes in wealth holdings such as stock market corrections and run-ups, large swings in real estate prices, etc.

  7. 7.

    “Taxes” here, include all taxes—federal, state, property, etc. In Chap. 10 we differentiate between business and consumption taxes.

  8. 8.

    Shifts in curves were discussed in the microeconomic digression in Chap. 3.

  9. 9.

    Please see Confidence, Credibility and Macroeconomic Policy: Past Present and Future, by Richard C.K. Burdekin, and Farrokh K. Langdana, for an in-depth discussion of this subject (Chap. 7).

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Authors and Affiliations

  1. Rutgers Business School, Rutgers University–Newark and New Brunswick, Newark, NJ, USA

    Farrokh K. Langdana

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  1. Farrokh K. Langdana
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Correspondence to Farrokh K. Langdana .

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Langdana, F.K. (2016). Aggregate Demand: Setting the Stage for Demand-Side Stabilization. In: Macroeconomic Policy. Springer Texts in Business and Economics. Springer, Cham. https://doi.org/10.1007/978-3-319-32854-6_4

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