The Basics of Aggregate Demand Management

This chapter talks about the role of government induced tools, such as actions by the central bank or actions in budget spending and tax decisions, towards a stabilization policy. Stabilization policies by the central bank and the budget can help create full employment. Using graphs, Professor Sachs explains possible supply and demand scenarios. There is a focus on, and explanation of, aggregate demand though the GDP + M = C+I+G+X formula, which is a relationship that takes all the goods available and either consumes, invests, buys (government), or exports them. Aggregate demand management uses tools that government posesses. Keynesian economists suggest that we should use our stimulus policies readily.

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