Throughout this macroeconomics course we have learned a plethora about fiscal policy, monetary policy and supply and demand. During the course we have also learned about different theories regarding these practices and what works best in economics. We have heard about the Keynesian, Classical, and Monetarist theories and the theory that most accurately reflects my views, would be the components brought forward by the Keynesian theory of economics.
First, I would like to discuss aggregate supply and demand related to John Maynard Keynes who did not develop the analysis, but expanded upon it in the 1930’s during the great depression. Classical economists believe that the labor market always adjusts to equilibrium; they assumed long term unemployment was not possible, and believed that the economy would always return to a long-run aggregate supply curve. This is where I consider the Keynesian theory to seem more equitable. Keynes did not believe that the long run aggregate supply curve was the best approach because he held the opinion that in the long- run “we’re all dead”. Instead, Keynes believes that we should place more emphasis on the short-run aggregate supply curve. Keynes concluded that the aggregate demand is influenced by many factors including unemployment and inflation. Keynes theory is highly intellectual in reference to supply and demand, the real GDP, interest rates, unemployment and money. This idea made more of an impression on me because it allows economists to see the relationship between the quantity of aggregate output supplied and the price level in the short-run so they can try to find solutions more quickly. This is useful because when there is a shift in the SRAS economists can see there is a problem that h...
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...ists that were not listed in our text and one of which was Friedrich Hayek. After reviewing some of his theories I found those to be impressive as well.
Works Cited
Macroeconomics Third Edition by Paul Krugman and Robin Wells, 2012
http://en.wikipedia.org/wiki/Keynesian_economics April 24,2014
http://www.newyorker.com/reporting/2011/10/10/111010fa_fact_cassidy By JohnCassidy April 25, 2014
http://thesaurus.com/ April 24, 2014 - May 2, 2014
http://www-tc.pbs.org/wgbh/commandingheights/shared/pdf/ess_keynesiantheory.pdf Excerpted from the profile of John Maynard Keynes included within this site, which, in turn, has been adapted from the book The Commanding Heights by Daniel Yergin and Joseph Stanislaw, 1998 ed.Copyright © 1998 by Daniel A. Yergin and Joseph Stanislaw. Reprinted by permission of Simon & Schuster, Inc., N.Y. All rights reserved. April 29, 2014
One of the key strengths of this book is the author's first-hand knowledge of the people, places, and events that he is writing about. He also supplemented this first-hand knowledge with extensive interviews. In one example, he elaborated on the "chain of command" in Vietnam, which began with General Paul Harkins (and William C. Westmoreland) to the CINCPAC (Admiral Harry Felt) and from CINCPAC to Washington. "Not once in their four years of mutual agony in Vietnam did Harkins's successor, General Westmoreland, pick up the telephone and call his commander-in-chief, President Lyndon B. Johnson. Westmoreland did not have the authority, he told me."(169) This information came directly from an interview with Westmoreland. There are other anecdotes similar to this with each contributing to the extensive nature of the book's detail.
Keynesianism and monetarism are both ways to stabilize the economy and promote growth when need. In keynesianism, government uses fiscal policy which is a list of policies that government spending and taxing can be used to improve the performance of an economy. The government produces stabilization by taxing and spending yearly plans. Taxing can occur when inflation is high and lowering taxes tends to occur during a high percentage of unemployment. By lowering taxes, it increases disposable income or the party of income that goes to financial responsibilities. When people have more money, they are able to spend more which in return goes into jump starting the economy. Monetary Policy is another policy used in Keynesianism which is a list of protocol designed to regulate the economy by setting the amount of money that is in circulation and controlled interest levels. The Federal Reserve system also known as the central banking system in the U.S. which holds control of this policy. Monetary policy has three tools used my the Federal Reserve to enforce this policy. Reserve Requirement is the first tool that determines the lowest amount of money a bank must possess and is not able to lend out. The second way to enforce monetary policy is by using the discount rate or the interest rank a bank will charge. The f...
Franklin D. Roosevelt, president of the united states from 1933 to 1945 (and the distant cousin of Theodore Roosevelt), was the first to convert to Keynes’s theories. He implemented massive public works programs to put people to work. Called the “New Deal”, an echo of Theodore Roosevelt’s square deal, it consisted of a series of programs from 1933 to 1938. As well as providing employment through massive works projects such as the Tennessee valley authority, which built dams to generate electricity. New deal programs provided emergency relief, reformed the banking system, and tried to invigorate agriculture and the economy. Many other programs were also put into place with were used to attemp...
Comparing Keynesian Economics and Supply Side Economic Theories Two controversial economic policies are Keynesian economics and Supply Side economics. They represent opposite sides of the economic policy spectrum and were introduced at opposite ends of the 20th century, yet still are the most famous for their effects on the economy of the United States when they were used. The founder of Keynesian economic theory was John Maynard Keynes.
Keynes and Hayek represent different options. Should we steer markets or set them free? “Which way should we choose, More bottom up or more top down?” (Fight of the Century). These questions reflect the opposite ways Keynes and Hayek address the economy. Keynes wants to “steer” the economy from the “top down.” From his understanding of the economy, Keynes theorizes that the market can be directed by those with the power to do so to accomplish goals leading to a prosperous economy. This is the basis in his approach to dealing with recessions where the government or central bank manipulates the economy. The other side is a free market from the “bottom up” on which Hayek stakes his claim. Instead of steering the economy, Hayek proposes to leave it alone. Do not try to control it, but let the market determine the interest rate and price level, as it eventually will, through supply and demand. In this way, control is not exerted downward, but reality is expressed from basic economic forces. Fundamentally, Keynes’s model focuses more on the spending and consumption aspects of GDP, and Hayek’s approach focuses more on the investing aspect which flows from saving. These are the options from which to choose. Keynes vs. Hayek, Short run vs. long run, controlled vs. free, top down vs. bottom up, each possibility has its negatives and positives. This debate is not wrapped up
John Maynard Keynes, British economist, journalist, was born on June 5th 1883, in Cambridge, England. His father, Dr. John Neville Keynes, was an economist and a philosopher. Keynes attended Eton and then Cambridge University. At first he studied Mathematics but then turned his attention to Economics when he was offered the job at the British treasurer after the First World War when the British economy was at pressure. A man who gained a modicum amount of wealth during 1919 to 1938, married to Lydia Lopokova in 1926 and passed away in April 21st, 1946. Keynes believed that price level has to be stabled in order to have a stabled economy, and that is only possible if interest rates go down when prices rise. He also believed that the market forces alone will not deliver full employment but boosting government spending (main force of the economy in Keynes theory) will aim in his theory full employment or close to that. He believes by Governments intervening and spending will finally stop recession, unemployment and most importantly depression. For spending will increase the aggregate demand of the economy.
I believe that it's’ important to use our constitution as a guiding tool to help appoint the correct people for the job.John Maynard Keynes was a British economist where he fundamentally changed the theory and practices of macroeconomics and economic policies of government. Although he was revolutionary most of his policies were controversial and used Keynesianism economic to get people to stay away from them . His approach to macroeconomic management was different since the previous traditional laissez-faire economists believed that an economy would automatically correct its imbalances and move toward a state of equilibrium, They expected the dynamics of supply and demand to help the economy adjust to recession and inflation without government action. Laissez-faire economics thus regarded layoffs, bankruptcies and downturns in the economy not as something to be avoided but as elements of a natural process that would eventually improve. However that was not the case for the great depression. Keynes also believed that a given level of demand in an economy would produce employment however he insisted that low employment during the depression resulted from inadequate
Classical economists believe that these are “temporary” changes that will correct themselves in the long run. They feel that an economy will always tend towards operating at its potential output as given by the long-run aggregate supply curve. Nothing needs to be done by the government because normal market forces will serve to self-correct these issues. On the other hand, Keynesian economics argue that the gap between the lower and the potential levels of output is due to a change in aggregate demand. They argue that this gap can exist for a long time and that the gap can be pushed to close faster if the government enacts fiscal and monetary policies.
Keynesian school of thought has been widely in application in the modern day. The markets have frequently veered off the rail and necessitated governments to interfere (Fazzari, and Variato, 1994). John Maynard Keynes is one of the most influential economists of the modern day. In his book on the general theory of employment, we realize that the private sector decision making sometime leads to imperfections in the market and, therefore, there is a great need for the governments to interfere to correct them (Keynes, 1937). Some of the imperfections that we witness in a market controlled by the private sector include monopolies, unemployment, black markets, cartels as well as hoarding. There is thu...
There are two major views on the government’s role in the economy, the Keynesian view, and laissez faire. The Keynesian view is often held by liberals and democrats. This is the belief that it is the government’s responsibility to regulate and attempt to manipulate the economy. This is often characterized by taxing and subsidizing, and redistribution of wealth. The laissez faire philosophy is held by republicans and libertarians. In a laissez faire economy, the market determines where the money flows. Those who participate in the market determine the supply and demand with the way they spend their time and money.
Keynesian Economics was developed and founded by John Maynard Keynes. He believed and wrote in his book “The General Theory of Employment, Interest and Money” that it is essential for the Government to play a vital role in economic stability. Keynesian theorists believe government spending, tax hikes and tax breaks are vital to economic success. Keynesian assumptions include: Rigid or Inflexible Prices, Effective Demand, and Savings-Investment Determinants. Rigid or Inflexible Prices suggest that wage increases are easier to take while wage decreases hit resistance; likewise, a producer will increase prices yet when needed will be reluctant to decrease prices.
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)
Keynesian method and world-systems theory deserve special attention. It is Keynesianism that makes possible for the radical political economists to apply the bipolar model, centered on
Keynesian economists, similar to Classical economists, also believe that the economy is made up of consumer spending, government spending, and business investments. However, the Keynesian Theory says government spending can improve economic growth in the absence of consumer spending and business investment (Differences). According to the Keynesian theory, wages and prices are not flexible. A static price will give a horizontal aggregate supply curve in the short run (Classical and Keynesian Economics).
Ferguson, S (1999) Keynesian Theory and its implication, College of Management and Economics, Canada University, 298-312