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Showing posts with the label Natural level

Procrustean Art of Backtracking: “AS Curve: the Sticky-Price Model”

  The following is copied from somewhere else and then slightly modified.              Under the assumption that some firms hold their prices sticky, certain macroeconomists including the influential Harvard economist Gregory Mankiw ( Macroeconomics , 8 th ed. § 14-1) illustrate the AS curve to be P= s∙EP+ (1– s)∙[P+ a∙(Y– Y*)] , where EP is the planned price level (“sticky prices”), “ s ” the fraction of firms stuck to EP , Y* the natural level of output, and “ a ” is a coefficient. Incidentally, the coefficient has a very complicated metric but nevertheless has little meaning as a link between indexes.              The equation has many flaws in addition to dimension aberration and being a relationship of indexes of little meaning on their own. First among other additional defects, firms cannot “set” their prices without affecting their outputs. In the ...

Procrustean Art of Backtracking: “Long-run AS Curve”

  To begin, we have in the AS-AD model the real GDP [ Y = ( nominal GDP )/ ( the price level) ] on the abscissa and the price level ( P ) on the coordinate.                Some Q&A’s, first:   1)      What is “the price level” ( P )? Ask macroeconomists, please. 2)      What is “the real GDP”? Ask macroeconomists, please. 3)      What is a “long run” like? Ask macroeconomists, please 4)      What is “AS (for aggregate supply)”? Ask macroeconomists, please. 5)      What is a “curve” like? Ask macroeconomists, please. 6)      What is “the long-run AS curve”? Ask macroeconomists please. 7)      How are “the price level” for GDP and “the price level” on the ordinate different? That’s a great question, but again “Ask macroeconomists, please.”   Amon...