PMCN Case Study

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The theory of economics does not furnish a body of settled conclusions immediately applicable to policy. It is a method rather than a doctrine, an apparatus of the mind, a technique for thinking, which helps the possessor to draw correct conclusions. The ideas of economists and politicians, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist." (John Maynard Keynes, the General Theory of Employment, Interest and Money p 383)

Critically assess the extent to which “the ideas of economists” might improve the performance of an organisation of your choice.

Table of Contents

Introduction 3

Context 4

Literature Review 5

1. Microeconomic Concepts and the PMCN 5

1.1 Transactions Cost Theory 5

1.2 Profit Maximization 7

2. Macroeconomic Concepts and the PMCN 9

2.1 Fiscal Policy and the Budget. 9

2.2 Monetary Policy – Rules Based Framework/Taylor Rule. 11

3.Synthesis and Conclusion 13

References 14

Bibliography 18

Introduction

This paper provides a critical assessment of the performance of organizations which could be linked to economic theories and concepts. Through a review of various literature, research and conclusions of economists such as Friedman (1970), Coase (1937), Williamson (1981, 1998, 1975), Sloman et al. (2013), Powell (1990), Taylor (2011, 2012) and so on, the researcher presents a critical assessment of the microeconomic and macroeconomic concepts which were found to affect performance of a typical organizations. The concepts were also linked to other aspects of economics ...

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...ft/wp/2013/wp1365.pdf. [Accessed on 21st of April 2014].

Grossman, S.J and Hart, O.D (1983). An Analysis of the Principal-Agent Problem. Econometrica Vol. 51, No. 1 January 1983. Available on: http://classes.maxwell.syr.edu/ecn611/GrossmanHart83.pdf. [Accessed on 20th of April 2014].

Jensen, M.C and Meckling, W.H (1976). Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure. Journal of Financial Economics, October, 1976, V. 3, No. 4, pp. 305-360. Available on: http://www.sfu.ca/~wainwrig/Econ400/jensen-meckling.pdf. [Accessed on 20th April 2014].

Tadelis, S and Williamson, O (2010). Transactions Cost Economics. University of California Bekerley

The IMF (2014). Fiscal Policy and Income Inequality. International Monetary Fund Policy Paper. Available on: http://www.imf.org/external/np/pp/eng/2014/012314.pdf. [Accessed on 21st of April 2014].

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