Tuesday, March 29, 2011

Striking inanity

Mankiw thinks that the scatterplot below is striking. He should read an intro textbook (I imagine even his text presents the simple Keynesian model).


What drives both is the expansion of autonomous demand. Demand increases output, and as per Okun’s Law reduces unemployment. Investment follows the accelerator, that is, as output increases firm’s investment also increases to maintain the relation between productive capacity and income. How is this striking?

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