Answer:
The options for this question are:
A. in the short run, in the long run
B. in the long run, in the short run
C. in the short run, also in the short run
D. in the long run, also in the long run
The correct answer is: A. in the short run, in the long run.
Explanation:
It is a kind of eclectic theory that assumes the positions of both groups (neoclassical and Keynesian). It developed in the 1960s and becomes the most popular model among economists trained in the West. It arises from the reformulation of Keynesian ideas made by economists such as Hicks, Samuelson, Solow ... It is a "transaction doctrine" that arises from Neoclassical and Keynesian analysis, that is, part of the acceptance of the Keynesian model, although it admits the validity of neoclassical macroeconomic theories, and expresses the possibility and need for the economy to be stabilized through the use of appropriate fiscal and monetary measures. It was not really a synthesis of neoclassical ideas with Keynesians ... but simply the reaffirmation of the neoclassical framework with the addition of some "Keynesian macroeconomic" terminology. The aggregate functioning of the economy can be represented in a simple way by going to the supply and demand curves.
Aggregate demand consists of consumption + investment + public expenditure + net exports. The public variables that affect demand are: amount of money in the economy, public spending, global taxes and exchange rate. The private variables are: a given volume of autonomous investment and a specific amount of preference for liquidity. The international variables are: a certain production and a price level. The relationship between production and prices will appear as decreasing due to two factors:
- If prices increase, exports decrease and imports increase, therefore, aggregate demand decreases.
- Prices increase, the demand for money increases, the interest rate increases, as a consequence of this, consumption and investment decrease and, therefore, the aggregate demand decreases.
Any change that affects effective demand will cause that aggregate demand curve to shift: If the amount of money in the economy increases, the interest rate decreases, so consumption and investment will increase as well as aggregate demand. If public spending increases, aggregate demand increases. If global taxes increase, consumption and aggregate demand decrease. If the exchange rate increases, exports will increase and imports will decrease, so aggregate demand will increase. If autonomous investment increases, aggregate demand increases. If the preference for liquidity increases, the demand for money and the interest rate increases, consumption, investment and, consequently, aggregate demand decreases. If prices and production in the rest of the world increase, aggregate demand increases.
