Equilibrium Unemployment Theory
1 total work
This text, written with the graduate student in mind, analyzes the aggregate demand and aggregate supply for the open economy both in the short-term and in the long-term. The author discusses the role of expectations, price flexibility and market clearing for the determination of output and employment, and considers the role of monetary and fiscal policy in stabilising potential fluctuations. Two aspects of the problem are considered: the part played by stochastic shocks in destabilizing output and the extent to which policy could or should counteract them, and secondly, the implications of the stochastic nature of the macroeconomic system for the permanent income theory of consumption, the inflation-unrmployment trade-off and the other relations that make up the macroeconomic system.