Three Big Problems with Aggregate Demand Management

This chapter mentions three problems with stimulus policies. First, it may not be so easy to raise aggregate demand using the specific policy tools that government has, and examples are tax cuts and increased government consumption (among others). Second, the upward-sloping aggregate supply schedule may actually be vertical, complicating government attempts to shift aggregate demand. Third, the long-term consequences associated with a stabilization policy will have an impact on aggregate demand policies, so we may need to focus more on the short-term consequences.

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