Could use some help here.

[Gumba Masta]

Because the economy can't keep up with it's production which would decrease supply and increase prices?

[Travis Retriever]

Because the economy can't keep up with it's production which would decrease supply and increase prices?

Exactly.

[Gumba Masta]

Oh well then... Wait I got that right?

[Virgil0211]

It's Keynesian garbage; they think the demand curve is actually what drives supply. This is exactly why Obama's trying to encourage consumption during a recession, which is exactly the wrong thing to do.

So how do I counter this?

Virgil0211
"Your reference to inflation only works assuming prices are completely flexible. "

I'm sorry, but could you expound on this? I may just be a bit tired (finals week and all), but I'm having trouble recalling what this line of argument was about.


supermurder67
Sure no prob. You said increase in demand only creates inflation, which is true if you follow the classical economics supply curve which says prices are flexible. If you say prices are sticky like Kaynes increase in demand increases gdp without raising the price level. Or more modern models show that you can manipulate demand until the economy reaches full employment and then after spending starts to be recessionary

[MrBogosity]

Ask him what he means by "sticky."

[Virgil0211]

Ask him what he means by "sticky."

His response:

Sticky in the terms of the relation to real and nominal wages. Like your income increases, but your consumer goods increase to about the same level. In other words your real income is determined to how much goods you can buy with it, while the nominal income is the actually number. The amount of goods you can buy stays the same. Or like say a businesses lays people off during a recession. Then they slowly hire them back as businesses comes back. Catching what I am throwing?

[MrBogosity]

Okay, that has NOTHING to do with stickiness.

As I figured.