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Austrian Economist’s take on Fiscal Policy PL Y AD SRAS Doing nothing in the short run Since u is still too high, firms bid up the prices of other production inputs Since u is too high, w is bid up by firms looking for scarce laborers LRAS
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Austrian Economist’s take on Fiscal Policy
Jill StudentJack DeskoccupierDan Intheclouds
Joanie Willgraduatesoon
Austrian EconomicsMay Term 2015
Professor Hal SnarrWestminster College
Austrian Economist’s take on Fiscal Policy
PL
12 15 Y
AD
SRAS
115118 Doing nothing
in the short run
• Since u is too high, w is bid up by firms looking for scarce laborers
LRAS
Austrian Economist’s take on Fiscal Policy
PL
12 15 Y
AD
SRAS
118115
121Doing nothingin the short run
• Since u is still too high, firms bid up the prices of other production inputs• Since u is too high, w is bid up by firms looking for scarce laborers
LRAS
Austrian Economist’s take on Fiscal Policy
PL
AD
SRAS
115Worrying about a higher price level
118
• Since u is still too high, firms bid up the prices of other production inputs• Since u is too high, w is bid up by firms looking for scarce laborers
• To prevent prices from rising, the Fed raises interest rates just enough
LRAS
118
Austrian Economist’s take on Fiscal Policy
PL
12 15 Y
AD
SRAS
115
105
11
Worrying about a higher price level
• Since u is still too high, firms bid up the prices of other production inputs• Since u is too high, w is bid up by firms looking for scarce laborers
• To prevent prices from rising, the Fed usually raises interest rates TOO MUCH
LRAS
Austrian Economist’s take on Fiscal Policy
PL
12 15 Y
AD
LRAS
SRAS
115Doing nothingover the long run
In the absence of all government intervention, innovation is not inhibited by the Fed hiking interest rates. Allowing low unemployment to persist
Austrian Economist’s take on Fiscal Policy
PL
12 15 Y
AD
SRAS
115Doing nothingover the long run
In the absence of all government intervention, innovation is not inhibited by the Fed hiking interest rates. Allowing low unemployment to persist
‒ drives cost-saving innovation‒ firms employ individuals who find creative ways to lower costs‒ Greater entrepreneurialism and technology raises LRAS‒ u rises to just equal un as workers are replaced by labor-saving technologies
LRAS
