Unit 2: Introduction to Macroeconomics

Lesson 12c: The AD/AS Model - Stabilization Policies and AS/AD in the Long Run

Something Interesting - Why are we studying this?

Between December 2007 and June 2009 output in the United States declined during what became known as "The Great Recession" . This was followed by a very slow, multi-year, recovery. Economists disagreed on what should have been done to quicken the recovery: ON THE ONE HAND: "The basic issue, says Krugman, is a lack of demand. American consumers and businesses, aren't spending enough, and efforts to get them to open their wallets have gone nowhere. Krugman's solution: The federal government needs to step in and spend. A lot." May 2, 2012 http://www.rollingstone.com/politics/news/paul-krugman-on-how-to-fix-the-economy-and-why-its-easier-than-you-think-20120502 ON THE OTHER HAND: "Is government’s role to fix economy? NO! Just get out of the way and it will fix itself" (The Investment Watchdog Blog). Sept. 12, 2011 http://investmentwatchblog.com/analysis-is-governments-role-to-fix-economy-no-just-get-out-of-the-way-and-it-will-fix-itself/ President Harry S Truman once said: "I want a one-armed economist, that way he cannot say, 'on the other hand'.

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