As per this theory, given the resources, the employment and output level of an economy is measured by the aggregate demand. Lack of aggregate demand causes unemployment and demand deficiency causes economic fluctuations. This demand deficiency can be eliminated by way of compensatory government spending. The Keynesian theories, however, could not provide solutions to the economic problems of developed nations. These problems included low growth, and high unemployment levels accompanied by high rates of inflation or stagflation. (Froyen, 2008)
Consequently, new schools of macroeconomic thought emerged which included monetarism, new classical monetarism, supply-side economics and new Keynesianism. According to the monetarists, the supply of money is the key factor that influences employment and output in the short run and level of prices in the long-term. According to new classical macroeconomics, the expectations of people regarding the monetary and fiscal policies of the government influence the behavior of aggregate demand and supply curves. As per supply side economics, the factors which operate on the supply side of the market have a greater role to play in the economy. According to new Keynesianism, the cost of changing prices and information problems results in price rigidities which lead to fluctuations in employment and output. (Froyen, 2008)
As one can see, macroeconomic theories are debatable and far from perfect. However, its dynamics and study is extremely important because both developing and developed nations are beset with macroeconomic problems like inflation, stagflation, recession, mounting debt burden and so on. Finding feasible solutions to these problems and steering a nation towards economic success requires the in depth study of the macroeconomics of that nation and the factors and forces which influence it. Keynesian theories which dominated the economic...
Macroeconomics Budget deficits today will tend to lower the rate of growth in the economy in the future. Budget deficits result in higher rates of public debt. While the U.S. borrows at very low rates, it nevertheless must pay interest on its debt, and it is that interest that represents a burden on future growth. What happens is that future tax receipts must be used to pay interest and principle on
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