Macroeconomic Timespans

Macroeconomic Time Spans: Changes can have different effects over the long run than they do in the short run! This is just going to be a brief comparison exercise between the long run and the short run.

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IN THE SHORT RUN:
-Changes in national income are a function of factor utilization rate: for an example, the rate of employment. When more people are employed, more factors are being utilized, so national income increases
-National income is demand-induced: aggregate demand determines what the national income is going to be. The higher demand is, the higher the factor utilization rate will have to be in order to sate demand.
-Actual GDP, or Y determines national income: this means that there can be recessionary or inflationary output gaps
-Fiscal and monetary policy can affect both aggregate demand and actual national income
-Policies focus on shifting aggregate demand
-Gapbusting is the political objective
-Policies affect utilization rates
-Policies are focused on stabilizing real GDP at it's potential

IN THE LONG RUN
-Changes in national income are a function of both the supply of factors (ie: the size of the labour force), and factor productivity (ie: how productive and useful, on average, each worker is). The larger the workforce, and the more productive that workforce is, the higher national income will be
-National income is supply-induced: even if demand increases, wages will simply adjust and price will change, but producers will still produce the same amount in the long run UNLESS their production capabilities change. The supply and productivity of factors affects supply, and therefore, can change production in the long run.
-Potential GDP (Y* or Yfe) is a better determinant of what the national income will be. While understanding that output gaps do occur thanks to the business cycle, it is long run aggregate supply which basically determines what GDP will be
-Fiscal and monetary policy have a neutral effect (or even a negative effect: if expansionary policies increase consumption at the expense of savings, then there will be a smaller "pot" for investors to borrow from, so investment will be lower in the long run, causing a lower long run GDP)
-Policies are aimed at affecting potential GDP
-Technological change is key
-Policies attempt to affect factor supply and productivity
-Growth is the political goal

Cool?

Cool! =D

Honestly, just read the chapter for this one: it's short, and it makes more sense than the class notes...