Monday, January 20, 2014

Cochrane on Aggregate Demand

aggregate demand" is a pretty slippery concept. You demand less of one good if you demand more of another. But how do we demand less of everything? Most "aggregate demand" models are missing a budget constraint. When they do put in a budget constraint, we demand less of everything by demanding more money. That, at least makes sense.

Anyway, Surely something like "aggregate demand" is at stake in turnining a financial crisis into a sharp downturn. The puzzle is why it goes on and on.

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