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KEYNESIAN: Relating to the macroeconomic theory developed by John Maynard Keynes to address the problem of the persistently high unemployment occurring during the Great Depression. This word is commonly used as a modifier for other terms, such as Keynesian economics, Keynesian policy, or Keynesian equilibrium. Beyond the theory itself, the term Keynesian has come to reflect a particular philosophy toward government and the economy that a market-based economy is unlikely to achieve the macroeconomic goals of full employment, growth, and stability without the active use of government policies.

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Lesson 16: Aggregate Shocks | Unit 3: Basic Shifts Page: 9 of 21

Topic: AD Decrease: Long Run <=PAGE BACK | PAGE NEXT=>

The long-run equilibrium is given by the intersection of the negatively-sloped AD curve and the vertical LRAS.
  • A decrease in AD results in a new long-run equilibrium.
  • At the new equilibrium, real production does not change, it stays at Qf. The price level decreases from Po to P2.
  • We're still missing a lot of short-run action that occurs as we go from one long-run equilibrium to another.

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TAX EFFICIENCY

Taxes, mandatory payments used to finance government operations, inherently disrupt the allocation of resources. This disruption might be good, correcting an otherwise inefficient allocation caused by pollution or market control. However, for an already efficiency allocation, a tax creates and inefficient wedge between the demand price and the supply price. This tax is generally paid partially by buyers and partially by sellers, which the tax incidence. Inefficiency arises because a tax reduces the total amount of consumer surplus and producer surplus, which is deadweight loss.

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Today, you are likely to spend a great deal of time driving to a factory outlet seeking to buy either an electric coffee pot with automatic shutoff or a brown leather attache case. Be on the lookout for bottles of barbeque sauce that act TOO innocent.
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The average bank teller loses about $250 every year.
"When you play, play hard; when you work, don't play at all. "

-- Theodore Roosevelt, 26th US president

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