Jim D. writes:
>but can't you say that the AS curve is drawn in the "Keynesian
>short run" in which the stocks of means of production are
>assumed to be given? Then capital investment leads to
>shifts in the long-run AS curve over time...
The problem I see with this argument is that we tell students that
fluctuations in output are primarily the result of changes in
investment. If investment increases doesn't the capital stock
increase and change the aggregate supply curve? I guess that
I don't understand how a change in investment can be large
enough to cause a recession or a period of expansion, in the
short run, but not have any impact on the production function.
The whole distinction between short run and long run is a mess.
Short run in micro is when a factor is fixed. Long run in
micro is when all factors are variable. In macro short run
is when actual price is not equal to expected price. Long run
in macro is when expected price=actual price but the capital
stock is still assumed to be fixed. In addition, if you
ask a neoclassical economist to define economics he/she will
reply it is the study of how to allocate scarce resources given
unlimited wants. Why are resources scarce? Because they are
finite where as wants are infinite. So if resources are finite,
they are fixed. This means that in the long run we are in the
short run. :-)
>>
>>According to neoclassical-Keynesian theory inflation does
>>not lower real wages. In the real world inflation is the
>>major mechnanism for lowering real wages and even
>>principles of economics students who don't seem to understand
>>much understand this fact.
>>
>I tell my students that real wages are determined by a race
>between prices and wages and that those with more bargaining
>power can win the race (so that w/p rises). The greater
>the rate of unemployment (cet. par.), the lower workers'
>bargaining power. So I blame unemployment (or other anti-
>labor policies of the government) for low or falling real
>wages.
>
I tell my students the same thing.
in pen-l solidarity,
Rudy
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