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Advantages and disadvantages of classical school of economic thought
Causes of global recessions
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Global recessions of 1975, 1982, 1991 and 2009 have questioned economists of the specific era to provide the causes of these recessions along with steps to avoid them. IMF considers global recession as “A decline in annual per capita real World GDP (purchasing power parity weighted), backed up by a decline or worsening for one or more of the seven other global macroeconomic indicators: Industrial production, trade, capital flows, oil consumption, unemployment rate, per capita investment, and per capita consumption” (World Economic and Financial Surveys). A recession therefore affects all the countries dependent on an economy undergoing recession. Since decades economists are trying to draft possible measures that an economy can take to avoid recession or to get out of a recession. Constant debates, on which approach an economy should take to get out of recession, have never reached to any conclusion. Mainly there are three schools of thought in economics that emerged during and after recession i.e. classical, monetarist and Keynesian. No school of thought has yet provided a perfect solution as the approaches by these three schools have many pros and cons. However, many economists believe that Keynesian is a more suitable approach for getting an economy out of recession. Although Keynesian approach have policy lags and can cause high inflation, however, Keynesian tools’ expansionary fiscal policy, expansionary monetary policy and revaluation of currency are very effective in increasing GDP ultimately pulling an economy out of recession. One of the tools of Keynesian approach is to adopt expansionary fiscal policy to increase economic activity within economy. Expansionary fiscal policy aims to cut taxes and increase government spend... ... middle of paper ... ...-and-recession-closer/>. Nishizaki, Kenji. "Chronic Deflation in Japan." Bank Of Japan, 2012. Web. 10 May 2014. Blinder, Alan S. "Keynesian Economics." : The Concise Encyclopedia of Economics. Liberty Funds, Inc., n.d. Web. 08 May 2014. . IP, Greg. The Wall Street Journal. Dow Jones & Company, 12 Dec. 2001. Web. 10 May 2014. . "Will It Hurt? Macroeconomics Effects of Fiscal Consolidation." International Monetary Fund. N.p., n.d. Web. 10 May 2014. . Posen, Adam. “The Realities and Relevance of Japan’s Great Recession: Neither Ran NorRashomon.” STICERD Public Lecture, London School of Economics, 24 May 2010
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 amount 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.
These conditions have the ability to cause recession. Now that an armistice has been reached in Korea, a recession is beginning to occur (Pach and Richardson, 54). I believe that the President’s chief concern should not be to make an immediate and fast acting restoration of the general economy. The problems of the federal deficit and the recession must wait until the more important problems are dealt with. The problem at hand is the rising rate of unemployment.
Waggoner, John. "Is Today's Economic Crisis Another Great Depression?" USA Today. N.p., 4 Nov. 2008. Web. 7 Mar. 2014.
Nakamura, Takafusa. [1971] 1983. Economic Growth in Prewar Japan. Translated by Robert A. Feldman. New Haven: Yale University Press.
In the following paper I will be examining the process of economic development in Japan. I begin with their history in the Meiji period and how that effected their great success in the postwar development. Then I will go through the different economic stages of economic development in postwar Japan. I will examine the high periods and low period in Japan economics, and the factors behind these shifts in development. Last I will give a conclusion and where I believe Japan economy will be in the future.
Looking back to the Carter and Reagan Administration’s, you can begin to see where the Recession originated from. Prior to the Reagan administration, the United States economy experienced a decade of rising unemployment and inflation. Political pressure favored stimulus resulting in an expansion of the money supply. Reagan wanted to increase defense spending while lowering taxes, Reagan's approach was a departure from his immediate predecessors. Reagan enacted lower marginal tax rates in combination with simplified income tax codes and continued deregulation. During Reagan's presidency the annual deficits averaged 4.2% of GDP after inheriting an annual deficit of 2.7% of GDP in 1980 under President Carter. The real
John Maynard Keynes was born in Cambridge, where he went to King’s College and earned a degree in mathematics, in the year 1905. He stayed for another year, studying under Alfred Marshall, influencing him to write “Tract in Monetary Reform”. For two years he joined the civil service and returned in 1908 to work as a lecturer in Cambridge. He proceeded to work and in 1919 was the British Treasury’s representative at the conference in Versailles, following World War 1. He left because he disagreed with the conclusion of blaming Germany for WW1, inspiring him to write his book on economics “The Economic Consequences of Peace”. Keynes was for the idea that Governments should step in to fix short run macroeconomic problems, challenging ideas of the classical economists who believed that the market corrects itself. In recession times the government should increase their spending to increase the GDP, and keep the income flow flowing, and in good times were GDP is at its maximum level governments should cut back on spending and reduce the GDP, to prevent price levels to shoot up past what is a good level for the majority. Keynesian Economics is a demand focused economics, and focus on solving the short-term problems. A well-known example of this is the actions taken to solve the problem of the Great Depression, where Governments used a “stimulus package” to increase Aggregate Demand and increase the flow of economy, so it wouldn’t be stuck in a recession. Keynes believed that wages were “sticky”, resistant to change, which is why AD must shift, because employment won’t change over time.
The reduction of government role in the economy will affect fiscal policy by decreasing deficit spending a...
Keynesian Economics was developed and founding 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 theorist believe Government spending, tax hikes or tax breaks are vital in economic success. Keynesian assumptions include: Rigid or Inflexible Prices, Effective Demand, and Savings-Investment Determinants. Rigid or Inflexible Prices suggest that wages increases are easier to take while wage decreases hits resistance; likewise, a producer will increase prices yet when needed will be reluctant to decrease prices.
Everyone has their own political leaning and that leaning comes from one’s opinion about the Government. Peoples’ opinions are formed by what the parties say they will and will not do, the amounts they want spend and what they want to save. In macroeconomic terms, what the government spends is known as fiscal policy. Fiscal policy is the use of taxation and government spending for the purposes of stimulating or slowing down growth in an economy. Fiscal policy can be used for expansionary reasons, which is aimed at growing the economy and increasing employment, or contractionary which is intended to slow the growth of an economy. Expansionary fiscal policy features increased government spending and decreases in the tax rates as where contractionary policy focuses on lowering government spending and increasing tax rates. It must be understood that fiscal policy is meant to help the economy, although some negative results may arise.
Fegerrer, S (1969) Keynesian Theory and its implication, College of Management and Economics, Canada University, 234-78
Ferguson, S (1999) Keynesian Theory and its implication, College of Management and Economics, Canada University, 298-312
Government stimulation of the economy is broken up into two parts fiscal and monetary policy. In Keynesian economics monetary policy produces real effects on employment and economic output only when prices are fixed. Which indicates that Keynesian economics is much more theory than an actual effective practice. But Keynesian economist believe...
Wall Street Journal 12 Feb 2009: p. A.13. SIRS Researcher. Web. 11 February 2010.
These two policies use to try to shorten recessions. Fiscal policy has its initial impact in the goods markets, then monetary policy has its initial impact mainly in the assets markets, which both effect on both level of output and interest rates. (R. Dornbusch et al., 2008)