Models Supporting the Economic Theory

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Alfred Marshall defines economics as the "Study of mankind in the ordinary business of life; it examines that part of individual and social action which is most closely connected with the attainment and with the use of the material requisites of well-being”.

Hence, the study of economics is based upon the needs and wants of an individual and three factors determine how an economy functions, consuming, producing and the sale of goods and services. The above definition allows the creation of many models to support the economic theory. One of the central models that dominated the nineteenth century economics was the Neoliberalism Theory. Neoliberalism is associated solely with Adam Smith, who sits on the right wing of the economic policy spectrum. Smith embraces the knowledge that consumer and producer control the stability of the economy. This theory favours capitalists through deregulation, free trade and privatization. As a result, it deemphasized the monetary policy and focused on a system that is cyclical-more self-regulating. The “laissez-faire” was not beneficial as it favoured the rich and exploited the poor. Thus, the unregulated markets could not prevent poverty and. However, John Maynard Keynes, an opponent of Adam Smith is situated on the left wing of the economic policy spectrum and disagrees with Adam Smith’s philosophies. John Maynard Keynes argues that government intervention is necessary for an economy to recover from a depression - it cannot recover by itself! The government has a progressive tax system, which ultimately prevented inflation. For instance, by taxing the rich more than the poor, the government saved money and paid down debts that incurred. In doing so, inflation is prevented since it takes money fro...

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...ian Theory, which considered national state policies. The Neoliberal Theory eventually led to the globalization project in the 1980s. Neoliberalism encouraged borderless global affairs for international competitiveness. Furthermore, Neoliberalism view on redistributive tax system differed from the Keynesian theory. According to the Neoliberalism Theory

“Unlike the Keynesian model, tax cuts to the poor and middle classes are not necessary to stimulate consumer demand. This is because it is supply that drives the economy, not demand. Rather, cuts in taxes should be directed toward the wealthy and business to induce savings and investments.” (Introduction to Business, Government, and Society, Page 83)

This resulted an increase in poverty. Therefore, the tax policy compared to Keynesian is not successful because it enhanced inequality by making the rich “richer”.