CHAPTER 9

Economic Instability

ECONOMICS, 5eRoger Arnold

ECONOMICS, 5eRoger Arnold

Arnold Economics, 5e / Ch. 9 Economic Instability©2001 South-Western College Publishing 2

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Arnold Economics, 5e / Ch. 9 Economic Instability©2001 South-Western College Publishing 3

Exhibit 1 Keynes’s View of Say’s Law in a Money Economy

Arnold Economics, 5e / Ch. 9 Economic Instability©2001 South-Western College Publishing 4

Exhibit 2 The Economy Gets “Stuck” in a Recessionary Gap

Arnold Economics, 5e / Ch. 9 Economic Instability©2001 South-Western College Publishing 5

Exhibit 3 A Question of How Long It Takes for Wage Rates and Prices to Fall

Arnold Economics, 5e / Ch. 9 Economic Instability©2001 South-Western College Publishing 6

Exhibit 4 Consumption and Saving at Different Levels of Disposable Income (in billions)

Arnold Economics, 5e / Ch. 9 Economic Instability©2001 South-Western College Publishing 7

Exhibit 5The Derivation of the Total Expenditures (TE) Curve

Arnold Economics, 5e / Ch. 9 Economic Instability©2001 South-Western College Publishing 8

Exhibit 6 The Three States of the Economy

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Exhibit 7 The Economy: In Equilibrium, and in a Recessionary Gap, Too

Arnold Economics, 5e / Ch. 9 Economic Instability©2001 South-Western College Publishing 10

Exhibit 8 A Change in Autonomous Investment Spending Relative to a Change in Real GDP

Arnold Economics, 5e / Ch. 9 Economic Instability©2001 South-Western College Publishing 11

Exhibit 9 Unemployment Rates in Industry, 1925–1928, and 1929–1933; Percentage Decrease in Prices, 1929–1932

SOURCE: Interwar Unemployment in International Perspective, Barry Eichengreen and T.J. Hatton (Dordrecht/Boston/London: Kluwer Academics Publishers).

Arnold Economics, 5e / Ch. 9 Economic Instability©2001 South-Western College Publishing 12

Exhibit 10 Autonomous Investment Spending and the Multiplier

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Exhibit 11 The Keynesian AS Curve

Arnold Economics, 5e / Ch. 9 Economic Instability©2001 South-Western College Publishing 14

Exhibit 12 Can the Private Sector Remove the Economy from a Recessionary Gap?