132 summer 2004

Monetarism

Milton Friedman and the monetarists emphasize the importance of monetary policy in influencing business cycles.

The textbook does a much better job of printing these points.

A Big Point

Keynesian models explain how we can be in a stable equilibrium without being at full employment. The equilibrium level of output will determined the equilibrium amount of labor hired, which may be less than the labor supply.

Crowding Out

While increased government spending stimulates the economy in the short run in a Keynesian model, the long run effect could be negative if the increased government borrowing results in less investment.