Relevant and even prescient commentary on news, politics and the economy.

Yellen wants to understand effective demand

Janet Yellen gave a speech where she posed 4 questions to economists in general seeking answers… The first question she asked was this… “The Influence of Demand on Aggregate Supply The first question I would like to pose concerns the distinction between aggregate supply and aggregate demand: Are there circumstances in which changes in aggregate […]

A glitch in the IS-LM model

Many top economists use the IS-LM model to support low interest rates. The LM curve of the IS-LM model is built upon a model of financial markets. In the graph above, money supply has been pushed far to the right to keep interest rates low. The model implies that the money supply would eventually have […]

Is the US at Full Employment?

This is a common question. It is important to know if an economy is at full employment. However, the question is wrong. or at least the way it is answered is wrong… Full employment is based on employment of labor. However, full employment must consider both labor and capital since they are both resources for […]

Stan Fischer has curve upside-down

Stan Fischer, vice-chairman of the Fed, gave a speech yesterday. (link) He said this… “As we noted in our statement, we continue to expect that the evolution of the economy will warrant some gradual increases in the federal funds rate over time to achieve and maintain our objectives. That assessment is based on our view […]