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Macroeconomic Problems, Microeconomic Solutions: Peter J. Boettke Econ 881/spring 2005 February 28
Macroeconomic Problems, Microeconomic Solutions: Peter J. Boettke Econ 881/spring 2005 February 28
Macroeconomic Problems, Microeconomic Solutions: Peter J. Boettke Econ 881/spring 2005 February 28
Microeconomic Solutions
Peter J. Boettke
Econ 881/Spring 2005
February 28
Main Points to Stress
Classical
Market discipline
Keynesian
Government correctives
Fiscal policy
Mix of fiscal and monetary policy
After Keynes
Market equilibrium
Fiscal Policy Versus Monetary Policy as a
Corrective
Liquidity Crowding
r r
trap LM out
IS makes makes
monetary fiscal
policy policy
ineffective ineffective
IS
LM
Y Y
Goods Market
equilibrium;
Money Market
r equilibrium
IS
Y
Y
What is Wrong With this Picture?
N
N0 N1
Short Run Phillips Curve
I
Long
Run at
Natural
Rate
U
Lucas Critique of Keynesian System
So
S1
r
D
Q
Q S/C
Lower
Order
Goods
Main Tenets of the ABTC
Non-neutrality of Money
Injection effects through Relative price adjustments
Capital Structure
Heterogeneous and multi-specific goods
Capital maintenance and entrepreneurial decision making
Intertemporal Coordination and Monetary
mechanism
Interest rates as signals between present and future
Complimentarity of Capital and Labor
Employment of scarce resources
Critique of ABCT
Theory
Bias error and bias toward particularly costly
errors
Incoherence of grafting a disequilibrium story on
an equilibrium theory
Empirical
Co-movement of investment and consumption
Limited applicability of interest rate mechanism as
trigger