An economist is building a model to predict the effects of a sudden, unexpected rise in global oil prices on a national economy. Why is it a standard and methodologically sound practice for the economist to assume the economy was in a state of supply-side equilibrium before this event occurred?
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Figure 5.3: A Fall in Investment and Aggregate Demand
The Policymaker's Sweet Spot as an Initial Equilibrium
The Policymaker's 'Sweet Spot' as an Initial Equilibrium
An economist is building a model to predict the effects of a sudden, unexpected rise in global oil prices on a national economy. Why is it a standard and methodologically sound practice for the economist to assume the economy was in a state of supply-side equilibrium before this event occurred?
Evaluating the Baseline Assumption in Macroeconomic Models
The primary reason economists assume an economy is in a state of supply-side equilibrium before analyzing an economic shock is that real-world economies are almost always in this stable condition.
The Role of Initial Equilibrium in Economic Modeling
Methodology of Economic Shock Analysis