VI. Extensions

1. The Concept of the Medium Run

It may be worthwhile to reexamine the concept of the medium run in this chapter. Typically, disturbances are analyzed in the text as follows. Assume the economy begins in a medium-run equilibrium. Now consider an economic disturbance. The new medium-run equilibrium describes a point to which the economy will tend to return in the absence of further disturbances. The new short-run equilibrium describes the immediate effect of the disturbance. This chapter describes the effects of disturbances on the unemployment rate and output in the medium run. Chapter 7 describes the short-run effects of economic disturbances and the transition from the short-run to the medium-run equilibrium. In the process, Chapter 7 describes the adjustment of prices over the medium run. In the real world, the economy is always experiencing some short-run shock and responding to previous shocks, so it is rarely in medium-run equilibrium. The medium-run concept is an analytical tool.

2. Additional Examples

Additional examples are presented in boxes in later chapters on the labor market. Some of these examples could be introduced here. In Chapter 8, which examines the Phillips curve, boxes examine the Japanese unemployment rate and changes in the U.S. natural rate over time. Although these examples fit naturally into a discussion of the history of the Phillips curve, instructors could use these examples in this chapter to reinforce the idea the natural rate of unemployment actually depends on structural factors that can change. In Chapter 13, a box discusses European unemployment. Instructors could also introduce this example in this chapter, but with care, since the discussion of European unemployment is related to technological change, the topic of Chapter 13.

Date: 2015-01-12; view: 953