Keynesian Theory Vs. Supply Side Essay Example

Keynesian Theory vs. Supply Side Essay example
Two very important economic policies that point in different directions of fiscal policy include the
Keynesian economics and Supply Side economics. They are opposites on the economic policy field
and were introduced in the 20th century, but are known for their influence on the economy in the
United States both were being used to try and help the economy during the Great Depression. John
Maynard Keynes a British economist was the founder of Keynesian economic theory. Keynesian
economics is a form of demand side economics that inspires government action to increase or
decrease demand and output. Classical economists had looked at the equilibrium of supply and
demand for individuals, but Keynesians focuses on the economy as a whole. Keynesian ... Show
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These taxes were passed from business to business and eventually to the consumer, ending with
higher prices. Along with raised taxes for the working class, this effect happened because there was
little encouragement to work if more was going to be taxed. Many people were also not willing to
put money into savings accounts or stocks because the interest was highly taxed or had a higher
interest rate. Supply side economics seemed to have worked each time it was tried throughout the
past and was even used by John F. Kennedy. Keynesian's theory of spending your way out of an
issue never really worked and most likely won't work because it contains negative effects. Supply
side economics which centers on increasing overall supply that includes good and services that are
produced by increasing availability of land, labor, and capital. Keynesian economics focuses on
demand side economics and the multiplier effect. This is considered spending your way out of a
recession. Keynes showed that the government could switch roles and become consumers during a
recession and spend enough money to kick start the economy again. This is a short term policy
meant to be used in a case that the United States is in such deep financial problems it would have to
come to this. The main difference between the two is that one is a short tem advantage while the
other takes longer. Keynesian Economics uses a tool called the multiplier
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New Classical Macroeconomics Arose From The Monetarism And...
Introduction
New Classical Macroeconomics arose from the Monetarism and Rational Expectation School in the
1970s and follows the tradition of classical economics. If the market mechanism is allowed to play
its role spontaneously, which could solve the unemployment, recession and a series of
macroeconomic issues. Keynesian economists believe that changes in the money supply will lead to
changes in effective demand that will changes in the total economy. For economic cycle fluctuation,
Keynesian economists believe that is a disequilibrium phenomenon. In 1960s, Keynesian
economists appealed to the Phillips curve, which means monetary or fiscal policy will lead to lower
unemployment rate and cause higher inflation rate as well. However, the new classical rejected the
idea, which argued that an expansion of aggregate demand will cause lowered unemployment and
economics fluctuation are economics balance under the incomplete information. Unexpected the
monetary shock is significant reason for equilibrium change. Luca's critique take into account the
Philips curve should used for evaluate the economics policy. Luca's critique take for the parameters
of measurement model is functions of policy variables, which will follow the policy change to alter.
"Neoclassical macroeconomists believe that the short–term Phillips curve is inexistence. New
classical macroeconomics adhering to the tradition of classical and effective to solution the
economic recession and unemployment defects

Business Cycle Theories : A General Comparison
Business Cycle Theories: A General Comparison
Maria Sciarrino
Niagara University
ECO101HON
Business Cycle Theories: A General Comparison
Throughout history, economies have experienced times of high growth and low unemployment as
well as times of little or negative growth and high unemployment. It is controversial whether or not
these instances occurred from regular fluctuations in the market. These alternating up and down
fluctuations typically occur over several years, with each individual cycle varying in length and
intensity. These fluctuations are known as business cycles, which have four phases. When the cycle
is at its peak, the economy is nearly at full employment and the economy is producing at or nearly at
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The differences and similarities of these four theories is the main focus of this paper.
Real Business Cycle Theory (RBC) defines the business cycle as being driven by unexpected
technology shocks which include any event that alters land, labor, capital, or technology. Positive
real shocks, such as good weather, are said to cause an economic boom. Good weather has a positive
effect on land which increases the production of agricultural goods. Negative shocks tend to cause a
recession. For instance, a plague can wipe out a large portion of a population which decreases labor
and, consequently, productivity falls. It is believed that disturbances from technological shocks will
solve themselves quickly and return to equilibrium without government intervention.
While Real Business Cycle Theory is considered a "supply–side" theory, each type of shock can also
influence demand. "Shifts in technology influence both the supply of goods for a given level of
inputs (work effort in particular), and the demand for goods through its effect on wealth and the
labor/leisure decision" (Plosser, 1989, p. 57). This suggests that the initial shock, which increases or
decreases productivity, will influence work effort and carry out to other sectors of the economy.
RBC models are characterized by agents (firms or households) who make decisions using rational
expectations with the intent of

The American Dream: Keynesian Economics In The United States
For many years, there has been one truth that countless Americans do not wish to face. That truth is
that the American dream is dying. The dream of going to college, getting a good job, starting a
family, or even purchasing a new home, seem foreign to many Americans now. With the middle
class shrinking in size, and the wealth gap between the wealthiest and poorest of Americans getting
wider, many can't feel anything but hopelessness. President Barack Obama had promised a full
economic recovery, but ended up just sewing up our economic wounds and ordering the economy to
be on bed rest for six years. Many economists argue that Keynesian economics, which favors
government intervention in the economy, is the best way to manage and fix a broken

Difference Between Classical And Keynesian Economics
Parts of economic theories seem to constantly change because there is no perfect economy;
however, there are two categories in which most economists fall under: Classical and Keynesian.
Classical economists follow the theory described in Adam Smith's Wealth of Nations regarding a
Laissez–Faire policy with no government intervention. People who are considered to follow the
Keynesian economic theory generally favor government intervention in the economy during
recessions in the business cycle (Colander p. 524). Three well known economists fall into these
categories: Milton Friedman and Friedrich von Hayek were considered to be classical economists,
while John Maynard Keynes, developed the Keynesian theory. Friedman was a firm believer in
capitalism and that the market's guiding hand would help to regulate the economy. According to the
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Similar to Friedman, he promoted a Laissez–Faire style economy and figured that government
intervention during recessions would only make problems worse (Encyclopedia of World Biography
222). He also believed that the more regulations the government had on the economy, the less
freedom consumers had when making a purchase (223). During the Cold War, many economists
though the Soviet Union's economy would grow at such a high rate that it would be larger than the
United States' economy; however, Hayek found holes in these arguments and did not think this was
true. According to economist David Peterson, Hayek's argument was, "...prices that efficiently
allocate resources cannot be set by government fiat. When an economy lacks the daily input of the
individual decisions of millions of consumers...the result is colossal waste and inefficiency (86).
This contributes to Hayek's free enterprise view on the economy, that it should be consumers who
determine the prices of goods based on their demand, not the

Essay on John Maynard Keynes Versus Friederich A. Hayek
Two major economic thinkers of the of the early twentieth century, John Maynard Keynes and
Friedrich A. Hayek, hold very different economic viewpoints. Keynes is among the most famous
economic philosophers. Keynes, who's theories gained a reputation during the Great Depression in
the 1930s, focused mainly on an economy's bust. It is where the economy declines and finally
bottoms–out, that Keynesian economics believes the answers lie for its eventual recovery. On the
other hand, Hayek believed that in studying the boom answers would be provided to lead the
economy out of the bust that was sure to follow. Hayek backed the Austrian school of economics.
John Maynard Keynes fostered a school of thought that came to be known after him, ... Show more
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This is almost the textbook definition of money illusion, which of course classical economics
assumes people are not fooled by. Still, Keynes ideas gained popularity and President Franklin D.
Roosevelt's New Deal was directly influenced by the Keynesian point of view. Keynes held that the
way out of a depression was to increase an economy's aggregate demand(AD). Roosevelt's New
Deal contained huge federal expenditures and government jobs programs, all designed to boost AD.
These programs, including direct relief, were paid by taxpayers dollars and the tax rates rose
dramatically multiple times during the Great Depression. F. A. Hayek, the "other" economic thinker
of the twentieth century, believed that the way to stabilize a broken economy was to find solution
from the boom that preceded the current bust. The Hayek–supported Austrian theory sought a
connection among business cycles, capital theory, and monetary theory. Hayek believed an economy
started going downhill when people did not coordinate their actions. The spontaneous order of the
free market and price system usually does a fantastic job of coordinating people's actions. Hayek
said that the credit market becomes distorted when the money supply increases, interest rates go
down, and the credit becomes artificially cheap (Friedrich). This causes an artificially high rate of
investment and malinvestment." [Malinvestment is ]...too much investment in long–term projects
relative to short–term ones, and the

Keynesian Theory And The Difference Between Real And...
Economics is not only useful to those who use it to determine future outcomes for the world, but it is
also an important part of society's everyday life. We unknowingly understand concepts derived from
economics when we are trying to make choices of what to buy, what to invest in, when to be
conservative about spending, and much more. Understanding the Keynesian theory and the
difference between real and nominal variables may not directly affect each other, but both play a
part in how we relate economics to our world.
Keynesian theory is a concept developed by John Maynard Keynes, in which it is believed that
governments should intervene with the economy and how it is dealt. Keynesian economists believe
that saving beyond planned investments is a very serious problem that encourages recession. If
saving goes beyond investments, there will not be enough demand to purchase the goods and
services that the economy is producing. Therefore, leading into a recession, or worse – a depression.
Keynesian economists believe that a government stimulus is more effective at boosting aggregate
demand than a tax cut because they believe that government intervention is a way to stabilize an
economy.
When governments have programs to benefit people who are doing specific jobs, it will bring that
money back into the economy, unlike tax cuts. If the spending is supported by tax increases then this
will reduce people 's incomes after tax, which will ultimately lead them to reduce their

Neoclassical Economics Vs. Keynesian Economics
The post –Second World War growth period, which is called Golden Age of Capitalism, has a great
influence in human economic history. During the period of time, a great many of the capitalist
countries have dramatically increased their economy and prosperity, such as United State which has
a substantially economic expansion at an average rate of 3.5% annually between 1945 and 1970.
Economic growth may be resulted by deregulation of market, rise of automotive manufacture and
industrialization which contribute to freight transportation, international corporation and emergence
of innovation.However, this prosperous period has not sustained permanently. 2007 global economic
crises, which is a global financial breakdown and increase ... Show more content on Helpwriting.net
...
It means that the final price, which is negotiated between sellers and buyers, would satisfy both
trade participants. Moreover, Marshall states that law of demand and consumer choice plays an
important role in determining the commodity price.For instance, price of goods always is smaller
than marginal benefit of the consumer if there are lots of producers and consumers in a competitive
market. Furthermore, perfect competition force many firms to reduce their production cost and use
efficient production way because the sellers can set a lower price compared with their rivals which
would be able to attract more customers. Therefore, these three neoclassical economic thoughts
demonstrate that the free market can appropriately reconcile the self–interest of producers and
consumers, so it would tend to towards equilibrium. According to Keynesian economic theory,
Keynes points out that unemployment is a serious issue in the economy that is caused by imperfect
information between producer and consumer. It implies that the producer may not sell out all the
goods that they produce Chang, H–J. (2014). For instance, similarly, a great many of labors seek to
find an occupation, but all the work–seekers may not be completely accepted by employers due to
firm's own preference and labour 's productive capacity. Moreover, Keynesian economic thought
states that uncertainty also is a main

The Keynesian School Of Economic Thought
1) List three key concepts from the Keynesian School of economic thought: (25 points) At least one
concept must describe the management of aggregate demand. a. The primary concept of the
Keynesian School of economic thought revolved around the management of aggregate demand. The
author of this idea, John Maynard Keynes, believed the economy was fundamentally unable to
sustain itself at full employment. One of his proposed solutions to this was for the government to
intervene to increase aggregate demand. He argued that by investing government funds, the
amplitude of the business cycle could be reduced and would stabilize continued economic growth.
Another method of managing aggregate demand involved taxation. By lowering the taxes on certain
goods and raising others, the government could influence public demand for certain products to
fluctuate based on its benefit to the economy as a whole. b. Another concept of Keynesian thought is
that of excessive savings. Mr. Keynes believed that if savings occurred in excess of the planned
investment it would increase the possibility of a recession or depression. He believed that excessive
savings were caused by discouraging business prospects, over investment in previous years, and a
decrease in consumer demand. The law of supply and demand states simply that as savings
increased interest rates would drop, until there was no longer reason to save; this plunging interest
rate would bring the economy in balance once again. Mr. Keynes

Essay Keynesian Economics
Macroeconomics is the branch of economics concerned with the aggregate, or overall, economy.
Macroeconomics deals with economic factors such as total national output and income,
unemployment, balance of payments, and the rate of inflation. It is distinct from microeconomics,
which is the study of the composition of output such as the supply and demand for individual goods
and services, the way they are traded in markets, and the pattern of their relative prices.
At the basis of macroeconomics is an understanding of what constitutes national output, or national
income, and the related concept of gross national product (GNP). The GNP is the total value of
goods and services produced in an economy during a given period of ... Show more content on
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If, however, some rigidity prevented wages from falling to the point where supply and demand for
labor were at equilibrium, then unemployment could persist. Such an obstacle could be, for
example, trade union action to maintain minimum wages or minimum–wage legislation.
Keynes's major innovation was to argue that persistent unemployment might be caused by a
deficiency in demand for production or services, rather than by a disequilibrium in the labor market.
Such a deficiency of demand could be explained by a failure of planned (intended) investment to
match planned (intended) savings. Savings constitute a leakage in the circular flow by which the
incomes earned in the course of producing goods or services are transferred back into demand for
other goods and services. A leakage in the circular flow of incomes would tend to reduce the level of
total demand. "Real" investment, known as capital formation (the production of machines, factories,
housing, and so on), has the opposite effect–it is an injection into the circular flow relating income
to output–and tends to raise the level of demand.
In the earlier classical models of unemployment, such as the one

Strother's Three Macroeconomics
If I were to see Strother ten years from now, it would most likely be at my wedding because he was
my favorite professor at APU. After the ceremony, all of the guests would head into the dinner; with
no surprise Strother would stop me and ask me what the three macroeconomic problems are. I
would stop and laugh and then with zero hesitation rattle off: recession, unemployment, and
inflation, then very sarcastically say you can't trick me, even ten years later. Once we finished the
business of macroeconomics at hand Strother and his wife would go and enjoy an extremely fun
night at my wedding party and he would no longer bug me about knowing the three macroeconomic
problems, as he was so impressed that he caught me after my wedding and I was ... Show more
When sitting talking to your future boss and he asks you "how much money do you want to make?"
Strother came up with a simple and easy response back. "I love your company and I'm a high
performer and I will meet your highest standards, if you could pay me at the highest of your
companies abilities." This leaves the door open for them to come back with the highest the company
can offer, which allows you to then know that you are receiving the highest and best offer that the
company can offer you at that point. This will allow you to either accept the offer or possibly try to
reach for a little bit more. Either way you are at peace knowing that you are receiving one of the top
paychecks within the

Milton Friedman And John Keynes Are Two World Renowned
Milton Friedman and John Keynes are two world renowned economist, with many similar and
contrasting views that have helped set the foundation of our economy. Friedman 's ideology on
subjects such as the Monetary Policy, Gold Standard, and the Theory of the consumption function
are what made him a extremely impactful economist. Keynes has made his impact on the modern
day world as well in many aspects. Both of these economists have helped pave the way to a better,
more efficient economy. Monetary Policy is the procedure by which the financial expert of a nation,
similar to the national bank or cash board, controls the supply of money. Regularly focusing on a
inflation rate or interest rate to guarantee value solidness and general trust in ... Show more content
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The expression "Keynesian economics" was utilized to allude to the idea that ideal monetary
execution could be accomplished and financial droops avoided by affecting total request through
dissident adjustment and financial mediation approaches by the administration. Keynesian financial
matters is thought to be a "demand side" hypothesis that spotlights on changes in the economy over
the short run. Basically Keynesian economics are the different theories about how in the short run,
and particularly during the recessions, monetary output is strongly impacted by total request (total
spending in the economy). The Gold Standard was the framework by which the value of cash was
characterized in terms of gold, for which the money could be traded. The Gold Standard ended up
being deserted in the Depression of the 1930s. Friedman felt that,"The gold standard is not feasible
because the mythology and beliefs required to make it effective do not exist. This conclusion is
supported not only by the general historical evidence referred to but also by the specific experience
of the United States" ( "The Gold Standard:Please Stop").Economists who contradict the Gold
Standard may perceive what must be accomplished with a specific end goal to make a centrally
controlled paper standard better than a decentralized Gold Standard. Milton Friedman poses the key
question: "How can we establish a monetary system that is stable, free from irresponsible tinkering,
and

Classical Vs Keynesian Economics
Classical and Keynesian economics are both accepted schools of thought in economics, but each had
a different approach to defining economics. The Classical economic theory was developed by Adam
Smith while Keynesian theory was developed by John Maynard Keynes. Similarities: One of the
most surprising similarities between the two theories is that John Keynes developed his theory based
on the Adam Smith's theory. Keynes did not entirely disagree with Adam Smith but rather, expanded
the theory based on the Great Depression. They were both capitalists and agreed on the basic tenet
of capitalism– that a free market is more efficient in terms of allocating resources. Keynes, based on
the Great Depression, addressed issues related to repairing ... Show more content on Helpwriting.net
...
The Keynesian Economic theory relies on spending and aggregate demand to define the economic
marketplace. Keynesians believe that aggregate demand is often influenced but public and private
decisions. This theory stresses that unemployment is caused by the insufficient growth and low
growth of aggregate demand. Keynes urged that the economy can be below full capacity for a
considerable time without intervention and, hence, the market is not fully efficient as described by
the Adam Smith. 2. Aggregate supply and aggregate demand The classical view suggests that real
GDP is determined by supply side factors, that is the level of investment, capital, and productivity.
This suggests that, in the long–term, an increase in aggregate demand resulting from faster growth
in Long–run Aggregate Supply (LRAS) would cause inflation. Thus, the Long–run Aggregate
Supply (LRAS) curve is inelastic. The theory also suggests that, in the short term, the economy will
be able to reduce unemployment below the natural rate by increasing demand, but, in the long run,
the wages adjust, unemployment returns to its natural rate and, consequently, inflation ensues. There
is no trade–off in the long run. The Keynesian views the Long–run Aggregate Supply (LRAS)
differently, purporting that an economy can be below full capacity in the long–run. This theory, on
the other hand, places greater

Neo-Keynesian Economics Summary
John Maynard Keynes (1883–1946) is a British economist who is the founder of Keynesian
economics and the father of modern macroeconomics. He published his foundational book: "The
General Theory of Employment, Interest and Money," in 1936 less than a decade after the great
depression of 1929. His theories were largely in contrast with classical economics. Between the
1970s and the 1990s, more economists reviewed the Keynesian economics and proposed some
changes, they are known as the New Keynesian economics or Neo–Keynesian. James Tobin,
Gregory Mankiw, and David Romer developed the foundations of Neo–Keynesian (Greenlaw, n.d).
In the following essay I shed the light on the basic principles of the New Keynesian economics and
how it deals with ... Show more content on Helpwriting.net ...
While both types differ in many aspects they build on each other and they try to offer realistic
solutions to problems.
References:
Jahan S., Mahmud A.S., & Papageorgiou, C. (2014, September). What is Keynesian economics?
Back to basics. Finance & Development. Vol. 51, No. 3. Retrieved from:
http://www.imf.org/external/pubs/ft/fandd/2014/09/basics.htm Greenlaw, S. (n.d). What is New
Keynesian economics? Seminar in advanced macroeconomics. A quasi–collaborative adventure.
Retrieved from: http://econ488.umwblogs.org/course–outline/what–is–new–keynesian–economics/
Mankiw, G. (2008). The New Keynesian Economics. The Concise Encyclopedia of Economics.
Retrieved from: http://www.econlib.org/library/Enc/NewKeynesianEconomics.html
Vjyaser. (2013, March 18).Classical and Keynesian Economics: Contending Approaches to
Macroeconomics. Slideshare. Retrieved from: http://www.slideshare.net/vjyaser/classical–and–
keynesian–economics–contending–approaches–to–macroeconomics
Tejvan. (2015). Keynesian vs classical models and policies. Economics Help. Retrieved from:

John Maynard Keynesian-Ism And The Great Depression
One of the driving forces behind John Maynard Keynes (to be addressed as Keynesian–ism here
after) was The Great Depression. The depression began in 1929––Keynesian–ism was written and
introduced in 1936; the end of The Great Depression is dated at 1939––the same year as when
World War Two broke out in Europe. This was introduced with great controversy as his economic
philosophy was completely different from what was "classical" economics at the time.
The Keynesian Revolution as it was called was in general an idea that would imply restructuring the
government's involvement in the free markets. Up till the Great Depression in 1929 the standard
"classical economics" was essentially the main theory used. The belief was that supply outweighed

A Study of Keynesian Economics
Which fiscal policies might "activist" Keynesian economists recommend to help a depressed
economy regain full employment? Explain how they work. Keynes and Keynesian economists
propose two large categories of measures to help a depressed economy regain full employment.
These are either monetary measures or fiscal measures. Monetary measures rely on the decrease of
interest rates and the reasoning behind this approach is as follows. The individual in an economy has
two basic option of utilizing his cash: save or consume/invest. If the interest rates are higher, then
the individual is more like to save than invest, because his return on investment (namely, on his
savings) is bigger than if the interest rates are lower. With this in mind, the individual will spend
more, purchase more products and services, invest perhaps in businesses etc. All these actions will
induce the economic actors to match the increasing aggregate demand on the market with a higher
aggregate supply. Companies and production outlets will have an additional incentive to produce
and sell more on the market, since the market is more active in purchasing the products and services
that they sell. In turn, in order to reach higher levels of production, the companies and firms need to
hire more employees. The unemployment levels will decrease overall in the economy, since this is
an aggregate phenomenon. The eventual theoretical conclusion should be that the economy will aim
towards full employment, under

The Two Differences Of Keynesian Economics And Supply-Side...
Two of the largest economic theories are Keynesian economics and supply–side (classic) economics.
They have their similarities, but they also have their own unique qualities. Keynesian economics
(Keynesianism) are the multiple theories about how during the short runs, mainly in recessions,
economic output is influenced a lot by cumulative demand. Supply–side economics is an economic
theory that says, by lowering the taxes on corporations, the government can stimulate investment in
the industry and therefore raise production, which will lower prices and control inflation.
(Differences Between) Supply–side economics is used in two different ways that are related. There
is the term that is related to the fact that production (supply) regulates consumption and the standard
of living. Our income levels reflect our ability to produce goods and services that people like and
want. Expansion and output makes higher income levels and living standards possible, they wouldn't
be possible without expansion and output. Almost all economists accept this theory and therefore are
"supply spiders". Changes in marginal tax rates and its influence on economic activity are also
described by supply–side economics. Economists on the supply–side economics believe that high
marginal tax rates lower income, output, and how efficiently we use resources. Marginal tax rate is
important because of how it affects the incentive to earn. Marginal tax rate tells us how much of our
additional income must be given to the tax collectors, as well as how much is retained by us. A raise
in marginal tax rates really affects the output of an economy in two ways. (Supply–Side Economics)
The first one being the higher marginal rates reduce the payoff people want from work and other
taxable productive activities. When people aren't allowed to keep much of the money they have
earned, they will earn it more sparingly. They can do this by taking longer weekends and using their
PTO instead. High tax rates can sometimes even drive highly productive workers to other countries
to work where the tax rates are lower. These adjustments people make will cause the effective
supply of resources and output to shrink. (Supply–Side Economics) The second one is that

The Keynesian Model Of Economics Essay
In an attempt to influence their economy, a government will take certain types of actions. The types
of actions that a government will take to influence its economy are inclusive of "setting interest rates
through a federal reserve, regulating the level of government expenditures, creating private property
rights, and setting tax rates." () A government will implement policies to help control, or in some
case, help remedy an economic crisis. This essay will be inclusive of three governmental policies,
implemented after 1970, to remedy and economic crisis, as well as evaluate the policies
effectiveness. This essay will alp provide a brief explanation of how the Keynesian model of
economics was applied to the economic crises of the 1970's. Lastly, there will be an overview of
how governments can create demand to correct market failure.
Post government policies: AARA, DODD–FRANK– New Keynesian One post 1970 government
policy was Passed by both the house and the Senate, the American Recovery and Reinvestment Act
of 2009 (ARRA). The focus of this policy was to assist economic recovering, by offering assistance
those who were most affected by the recession. This policy was instituted with the purpose of
"spurring technological advances in science and health," investing in infrastructure, and stabilizing
state and local government budgets." Another policy was known as Dodd– frank; The most
infamous day for the global financial market, was September 15, 2008. Prior to

Keynesian Economics and the Mortgage Crisis
Keynesian Economics and the Mortgage Crisis The recent mortgage crisis in the US was
unprecedented. It led to a massive clampdown of financial institutions, occasioning one of the worst
financial melt–downs the US has ever faced (Jaffe, 2008). Quite naturally, it would be necessary to
examine the cause of the crisis in order to draft prophylactic measures that would prevent the same
financial disaster in the future. This paper will discuss the events that led to the mortgage crisis.
The housing bubble One of the factors that led to the mortgage crisis was the housing bubble. It
started in 2001 and climaxed in 2005. A housing bubble is characterized by rapid increase in the
value of real estate properties to an extent that ... Show more content on Helpwriting.net ...
When the housing bubble came tumbling down, there were high defaults rates on the electorate and
this led to the emergence of high risk borrowers (Bianco, 2008). These were people with a
questionable financial history and may have lacked the sufficient means to sustain their mortgage
payments and hence, went under. This occasioned massive loses to all the players in the housing
sector. The worst hit was the lenders and the various investors. Real estate values further rose, luring
lenders into taking more risks in their financial transactions. All this was done in the hope of raking
in huge sums of dollars since the prices of the mortgages had gone up. Consequently, a large number
of people, including those who would not have qualified under normal conditions, were able to
secure mortgages. They soon realized that they had blundered but it was too late. Due to increased
supply of homes being disposed off by lenders and other financial institutions, the demand went
down sharply. There was no more money flowing in the economy as many people now stopped
taking the mortgages. This could have resulted into the mortgage crisis.
Declining risk premiums Interestingly, declining risk premiums encouraged lenders to consider
higher–risk borrowers for loans. A Federal Reserve study indicates that there was a general decline
in the difference between mortgage

Keynesian Economics
John Maynard Keynes' influence and ideology Even today John M. Keynes' ideas remain crucial to
the most important debate of our time: how can we escape from the economic crisis? Should
governments borrow and spend their way out of trouble or slash spending and reduce the national
debt? Despite Keynes' avid support for the free market, his theory is one strongly based on the
mixed–market economy. "Keynes said it was possible for governments to come in and make
markets work better... Keynes saved capitalism from the capitalists." – Prof. Joseph Stiglitz Keynes'
theory opposed Adam Smith's metaphor of "the invisible hand" – which envisages a self–correcting
economy, in the form ... Show more content on Helpwriting.net ...
* The advantage would come in the form of increased borrowing by consumers (as repayment
would be lower than usual). * More borrowing would lead to more demand and spending on goods.
* Since firms would also be able to borrow at a lower interest rate, they too would be willing to
spend more, therefore would employ more people and allow supply to meet demand at equilibrium.
* Higher employment would lead to more households having greater disposable incomes, again
causing demand and consumption to rise (in this instance, possibly even without households
borrowing more.) Large increases in government expenditure and investment into public projects
(such as infrastructure) are also used in Keynesian theory. If government expenditure were to
increase, more money would be injected into the economy through the creation of business
opportunity, higher employment and demand. This rapid increase in investment is attainable through
fiscal deficit – which Keynes believed (if done purposefully and methodically) would aid an
economy in recession. The fiscal deficit would come as a result of the issuing of government bonds
(the revenue from which would be used to fund the government's injection into the economy.) The
major drawback to this fiscal policy is the fact that the fiscal deficit would rapidly increase and
eventually taxes would have to

A Discussion Of Keynesian Economics
One type of economic belief is called Keynesian economics. This belief or theory is in favor of total
spending in the economy. It also agrees with total spending output and inflation, prices of goods
rising consistently. This form of economics was developed in the 1930's by a economist, John
Maynard Keynes, in hopes of gaining a better understanding of the Great Depression. Keynes was
for more government spending and lower taxes that would possibly pull the U.S. out of the
depression. Basically, this gave hope that America's government could get out of its low production
time by stabilizing goods. Before the idea of Keynesian economics, people believed that the
fluctuations in the output of manufactures would handle itself. The flaw in this ... Show more
Before the depression when economics was at a low they would soon rise again in fluctuation. The
depression put an end t this because there was such a shortage of jobs. This made Keynes start to
think about how to help people and handle economy in a real crisis. The thought that life as people
knew it was never going to return causing a "boom and bust" system. Keynes' suggestion about this
was that when the government was going good they should raise taxes and spend less money, and
when they were in a bust they should lower taxes to retain money to the people. Keynes did not just
expect the government to cycle money, but for the people to as well. He thought that unless you
were putting money back for the future that you should keep your money cycling in the economic
system. One of the biggest factors that had a part in Keynes' style of economics was something
called multiplier effect (which is essentially banks making money from lending money). He was
strong in the belief that if the government spent and invested, then they would make more money. If
people were willing to spend their money as well then, the PD would eventually begin to

Biography of John Maynard Keynes Essay
Throughout the history of economics, there have been many experts and professors whose ideas and
theories have fundamentally affected our thoughts and practices, but none has been as influential on
this subject as John Maynard Keynes. He was a British economist who revolutionized economic
thinking and to this day his work continues to be appreciated and utilized by many into what is
known as "Keynesian Economics."
John Maynard Keynes was an Englishman born in 1883, who went on to become one of the most
influential economists of the twentieth century. We know this economist best for Keynesian
economics which is described as the economies success is predicated on aggregate demand,
meaning that there is complete spending in the economy in ... Show more content on
Helpwriting.net ...
On the other hand, Robert Skidelsky, another British economist, seems to have a different view on
Keynes' work and the view of the economy. Skidelsky states that in today's economic climate
"Reforms should not be pressed prematurely, because they may cut off recovery by denting business
confidence, and they should follow a deep, not superficial, attempt at understanding what went
wrong." (Skidelsky, 2009) He also stated "Keynes was very clear about this in the early 1930s. It
might even be necessary to have a 'conservative' budget, he told a Swedish correspondent, if that
would help to get lower long–term interest rates." (Skidelsky, 2009) However, he goes on to imply
that although Keynes is correct in his thinking he backtracks on his notion that Keynes is still
relevant today as he states "the problem is the same today: how to carry out a Keynesian policy
when most of the key actors have a non–Keynesian model of the economy." (Skidelsky, 2009)
Skidelsky goes back and forth on Keynesian economics and again states that Keynes has influenced
current policies but continues to contradict himself by stating, "Keynesianism can at best be a
common element in very different systems of mixed economic

Macroeconomics Term Paper : Keynesian Economics
Macroeconomics Term Paper: Keynesian Economics
John Maynard Keynes: A famous economist John Maynard Keynes once said "by a continuing
process of inflation, government can confiscate, secretly and unobserved, an important part of the
wealth of their citizen" (Brainy, n.d., p.1). Keynes had studied in an economics and finance program,
and he searched for a solution as he felt that a depression in our economy may be rising. The
solution that Keynes discovered was completely different than any other economists, he talked about
how unemployment, saving, investing, and output are all connected together. During the great
depression, Keynes transformed the traditional economic way of thinking by introducing Keynesian
economics. Ever since the great depression, Keynesian economics has been a big help. Keynesian
economics is an economic theory of total spending in the economy and its influence on inflation and
output (Root, 2015, p.1). Keynes's idea is that the government should fuel the economy so that they
can overcome the short fall and spending from the private sector (Keynes, 2015, p.1). Also,
Keynes's theory is a short term remedy to provide steadiness and balance within our economy. The
government takes money to put into the economy, which cause a big debt. It is possible that the
government fails to invest required amount into infrastructure, and education (Keynes, 2015, p.1).
An effect could be a rise in prices for buyers and businesses due to the unnecessary government

Kayne vs Hayek
Chanya Udomphorn
ID# 5380040
Macroeconomics
Mr. Rattakarn Komonrat
Keynes vs. Hayek
Macroeconomics is a branch of economics dealing with the performance, structure, behavior, and
decision–making of the whole economy. Macroeconomists study aggregated indicators such as
GDP, unemployment rates, and price indices to understand how the whole economy functions. They
develop models that explain the relationship between such factors as national income, output,
consumption, unemployment, inflation, savings, investment, international trade and international
finance.
The two major theories of economics are Classical Economics and Keynesian Economics. Classical
economists believe that markets function very well, will quickly react to any ... Show more content
In 1974, Hayek shared the Nobel Memorial Prize in Economic Sciences (with his political rival,
Gunnar Myrdal) for his "pioneering work in the theory of money and economic fluctuations and...
penetrating analysis of the interdependence of economic, social and institutional phenomena". He
considered the efficient allocation of capital to be the most important factor leading to sustainable
and optimal GDP growth, and warned of harms from monetary authority manipulation of interest
rates. Interest rates should be set naturally by equilibrium between consumption of goods or capital
stock. He is considered to be a major economist and political philosopher of the twentieth century.
He was an important contributor to the Austrian school of economic thought. He also contributed to
the fields of systems thinking, jurisprudence, neuroscience and the history of ideas.
These two great thinkers had more in common than it is usually thought, including their idea of what
is a civilized society and how assuming their colleagues–economists may be when they 'pretend to
know '. This can be traced in their correspondence. But their views on the monetary system radically
differed. As an article states that Hayek viewed the market as capable to correct itself, when facing
shocks, by taking advantage of competitive forces, and regarded government and central bankers '
policy efforts to restore growth as causes of more instability. On the other hand, Keynes viewed

The Phillips Curve Essay
The Phillips Curve
Economists agree that unemployment and inflation are two of the major macroeconomic problems
of the twentieth century. If a relationship between the two existed then this would be a major break
through for the macro management of the economy. Phillips' work was empirical – started with
evidence and worked towards a theory. The causation for the Phillips theory was that the level of
unemployment caused the rate of change in money wages to be what it was.
'What economic theory lies behind this?'
As unemployment decreases the available pull of labour goes down. This means that resources
become increasingly scarce and workers can push for higher wage rates. Or as unemployment
decreases more people have
more ... Show more content on Helpwriting.net ...
They held that it was the government's duty to achieve the correct level of demand by manipulating
its own spending and tax receipts, or in other words, to have an active fiscal policy. This policy
required the government to spend more than it received if the economy had less than full
employment. As a consequence, aggregate demand would rise through a multiplier effect and
unemployment would fall. 'The inflation controversy – Demand–Pull or Cost–Push?'
Keynesian economists were divided into two camps. Some believed that inflation was caused by too
much demand for goods and services, or excess demand i.e. Demand Pull Inflation. Such
economists were very enthusiastic about the Phillips curve because it seemed to provide strong
evidence for their views. The second camp of Keynesian economists believed that inflation was
caused by cost pressures arising from high wage settlements gained by strong trade unions and from
increases in import prices i.e. Cost Push Inflation. They were doubtful about the usefulness of the
Phillips curve. On the
Nicholas Perry
evidence of the Phillips curve they thought that wage inflation and unemployment could be traded
off against each other, that policy makers could decide to have a bit less unemployment in exchange
for accepting a bit more wage inflation or vice versa. The Phillips curve helped the 'demand pull'
Keynesians in another way as in order to manage the level

Keynesian Theory During The Great Depression
Since the establishment of the Keynesian theory during the Great Depression, there was a
continuous rivalry between Keynesians and monetarists. The ongoing debate was about which
model can most accurately and correctly explain economic instability and which theory provides the
best suggestions on how to achieve constant and steady economic growth. There are fundamental
differences in these two approaches, for example over the usefulness of government intervention
through fiscal policies, monetary aggregates and money market conditions as a policy guide, fixed
and flexible exchange rates to name the few. Financial crisis that occurred in 2007–2008, boosted
the debate among politicians, economists, scholars over the way the economics policies should be
conducted.
To begin with, Keynes came up with a theory that challenged monetarist model, that was widely
employed in 1930s, as a reflection of the unprecedented events of the Great Depression. From
Keynes' point of view, it was the failure of the free market theory that led the world into financial
crisis. Keynes stressed the fact that non–interventionist policies proposed by monetarist economists
were the main cause of the depression. He believed that during the liquidity trap governments' best
response is to stimulate the aggregate demand in the economy to offset lack of confidence among
consumers and investors (Field 2011). Fear of future unemployment, uncertainty about the impacts
of recession, incentives consumers delay

The Classical View Of Employment And Income
Through the main economic schools of thought I will explain why reaching full employment may
not be possible. I will be going into detail on the classical view of full employment, and the
Keynesian view of full employment to help you understand better how each school viewed full
employment, and how to achieve it. The classical view gives you a look into the supply side of the
economy using Say's law and the Say's law flow diagram. Most economists followed the classical
view up until the 1930's. Then John Maynard Keynes influenced the world with the Keynesian
Revolution. Keynes believed that demand is what should be the focus instead of supply. He also
believed that the economy tends towards equilibrium and not full employment. Both of these
schools of thought bring interesting arguments against full employment and how they can achieve it.
I feel I must begin with the classical view of employment and income. The classical view of
employment and income began in 1776 and lasted all the way up until the early 1930's. The main
belief of the classical economists was that the economy would automatically adjust itself toward full
employment. They got their predictions using "Say's Law", which means "Supply creates its own
demand". In other words that businesses would create enough income to produce the right amount
of output. Say's law explained that the economy would reach full employment if all the people
seeking jobs were willing to work for the wage that is equal to their

The Keynesian Fiscal Policy Solution & Aggregate Demand
The Keynesian Fiscal Policy Solution & Aggregate Demand Problems
The 1920's witnessed a rise of a new economic policy which had not yet been seen prior to the great
depression. Before the great depression, the widely accepted economic policy which was
implemented and practiced around the world was called Natural Economics. Natural Economics was
a fiscal policy that embodied the idea that the economy would eventually take care of itself and run
freely without the government's influence. However, the duration of the Great Depression was so
substantial that it exposed natural economics to be ineffective. This lead British economist John
Maynard Keynes to invent his own economic policy that he introduced to economist around the
world with the ... Show more content on Helpwriting.net ...
In circumstances; such as war, Keynesians economic policy provides a near perfect solution for
boosting an economy. However, without a war to force an increase in demand, an increase in
government spending would snowball into a business cycle of aggregate demand problems.
Aggregate Demand is the total demand for goods and services within a market and consists of four
main components; investment, consumption, government spending and net exports. These coincide
directly with Keynesian's economic fiscal policy. For boosting aggregate demand is the primary
focus and supposed key to Keynesians fiscal policy solution. Since aggregate demand coincides
directly with Keynesian's economic policy, all of the policy's long term problems become aggregate
demand problems. With Keynes policy's increase in government spending comes an initial boost in
consumer spending which then boosts aggregate demand. Businesses increase supply and expand to
meet this boosted demand. However once the fiscal stimulus package runs out, the once increased
aggregate demand begins to decrease. The federal reserve begins to then print more money in order
to compensate for the recently depleted fiscal package in order to maintain the aggregate demand
levels. Additional printing of money lowers the value of the dollar thus causing inflation. As
inflation rates rise in the economy consumers purchasing power decreases. With consumers
purchasing power shrinking the

Keynesian Economics : The New Deal
Since the beginning of time people have been affected by their income and ability to accumulate
wealth. People live their lives spending or saving money based on their own expectations of what
the economy might do. For hundreds of years we have studied how the economic decisions of
individuals and governments affect the welfare of society as a whole. John Maynard Keynes
introduced a new economic theory that emphasized deficit spending to help struggling economies
recover. Keynesian economics revolutionized the traditional thinking in the science of economics.
His ideas and theories were deemed radical for his time but were later enacted by some of the largest
governments in the world including the United States during the Great Depression. President
Franklin Roosevelt enacted the New Deal in an attempt to stimulate the economy through
government spending. In this paper I will be giving background to the history economics, the Great
Depression, the New Deal, the development of Keynesian Economics. This paper will focus on
analyzing the following question: In an attempt to address high unemployment and economic
contraction, was Roosevelt's The New Deal efficacious in stimulating the economy and ending the
Great Depression?
Evolution of economic doctrine
Throughout history, the evolution of communities and societies has been influenced by the local and
global economy. Large cities emerged from vibrant business activity and flow of products and
services. For the most part

Post-Keynesian Economic Essay
Post–Keynesian economic was formed and developed by economists such as Joan Robinson and
Nicholas Kaldor who believed Keynesian economics was based on disequilibrium and uncertainty,
and that challenges the general equilibrium assumptions of neo–classical theory. The main aim of
post–Keynesian economics is to complete the unfinished Keynesian revolution.
Post–Keynesian economists fundamentally used ideas from Keynes and his concept of effective
demand, Marxist economist Michael Kalecki to provide a critique of neo–classical economics
beliefs and an alternative theory of markets. These economists again emphasise uncertainty, real
time and actual market conditions. They also revived the classical link between macroeconomic
theories of ... Show more content on Helpwriting.net ...
2
Characteristic of post–Keynesian Economic
There?@are a number of propositions which all post–Keynesians accept. Sawyer (1989) concurs
with Davidson (1981) on the following three: 1. The economy is a historical process, 2. In a certain
world, expectations have a significant and unavoidable impact on economic events and, 3.
Institutions, economic and political, are of paramount importance in shaping economic events.4
The main characteristics of post–Keynesian economic can be divided into four parts.
The first of all, the existence of uncertainty, this is one of the key elements of post–Keynesian
analysis. Because of the existence of uncertainty that the future is unknown and unknowable so that
economic agents?f expectations can be easily frustrated. Market forces cannot account for the
unknowability and unpredictability of the future and so can only disseminate incomplete, even
misleading, information. As the future unfolds and become the present Joan Robinson suggests that,
continues adjustment must be made. This process proceeds indefinitely without equilibrium ever
being achieved, let alone maintained. Thus history matters. 4
Relatively to the first matter, the second characteristic is ?ethe existence of irreversible time?f,
where economic agents enter into commitments well before outcomes can be predicted. ?gHistorical
time is sharply distinguished from logical time, which is rejected in post–Keynesian economics.
Logical time is closely related to

Two Theories Of Economics: Classical And Keynesian Economics
As interesting as the subject of economics is, it's a subject that isn't easily understood. In order to
grasp the subject you have to really understand the concepts. And it's not like riding a bike, once you
know how to do it you will always have it engraved in your head. I will attempt to highlight the key
factors of the two theories of economics: classical economics and Keynesian economics.
Since Classical Economics is considered to be the first school of economics. I will start to explain
this concept first. In the 18th and 19th centuries, there was a group of economists that worked
together to develop theories to explain how market to market relationship work between each other.
The most important contributor to the classical school of economics was the great economist Adam
smith, whom is considered the founder. Adam Smith stated in an excerpt from 'An Inquiry into The
Nature and Causes of The Wealth of Nations'. "By pursing his own interest, he (man) frequently
promotes that (good) of the society more effectively than when he really intends to promote it. I
(Adam Smith) have never known much good done by those who affected to trade for the public
good." You will understand that from those thoughts Adam Smith created the foundation of classical
economics.
It is key to point out the basic structure or assumptions that form classical economics. The three
theories that sticks out to me are: Say's Law: Say's law suggests that aggregate production in an
economy generates

Keynesian and Monetarist Economic Theories
Keynesian and monetarist economic theory: Budget deficits, supply–side economics and trade
deficits Keynesian economic theory arose first in opposition to classical economic theory during the
1930s. Keynes developed his philosophy as a way of remedying the aftereffects of the Great Crash,
which had spiraled into a great, world–wide depression. According to classical economic theory, the
ups and downs of the business cycle are to be expected. Eventually, prices become so low that
people start buying goods and services again. Businesses begin hiring again and the price of labor
becomes so cheap businesses are willing to give employment to formerly unemployed workers.
However, classical economic theory does not take into consideration that during very severe
downturns people begin 'hoarding money in their mattresses' they refuse to spend money no matter
how low prices drop, because they have a legitimate fear of loosing their jobs. Keynes "concluded
that classical economics rested on a fundamental error. It assumed, mistakenly, that the balance
between supply and demand would ensure full employment. On the contrary, in Keynes's view, the
economy was chronically unstable and subject to fluctuations, and supply and demand could well
balance out at an equilibrium that did not deliver full employment. The reasons were inadequate
investment and over–saving, both rooted in the psychology of uncertain" (Yergin & Stainslaw
1998). Keynes' solution was that rather than

Keynesian Economics Essay
The U.S. never fully recovered from the Great Depression until the government employed the use of
Keynes Economics. John Maynard Keynes was a British economist whose ideas and theories have
greatly influenced the practice of modern economics as well as the economic policies of
governments worldwide. He believed that in times when the economy slowed down or encountered
declines, people would not spend as much money and therefore the economy would steadily decline
until a depression occurred. He proposed that if the government injected money into the economy, it
would help stimulate consumers to purchase more and firms would produce more as a result, in a
continuous cycle. This cycle is called the multiplier effect. Keynes ideas have ... Show more content
"The aggregate expenditures line is the summation of consumption expenditures, investment
expenditures, government purchases, and net exports. The 45–degree line represents all
combinations in which aggregate expenditures equal aggregate output. Keynesian equilibrium is
also represented by the saving investment, or injection–leakage, model as the intersection between
the injection line (investment expenditures, government purchases, and exports) and the leakage line
(saving, taxes, and imports)."(2) Keynes established the theory of the multiplier effect. Keynesians
believe that, because prices are somewhat predictable, variations in spending, such as consumption,
investment, or government expenditures, cause output to fluctuate. For example, if government
spending increases and all other components remain constant, then output will increase. The
multiplier effect is defined as "output increases by a multiple of the original change in spending that
caused it."(3) This means, that if the government were to increase their spending by ten billion
dollars, it could cause the total output to rise by fifteen billion dollars (a multiplier of 1.5) or by five
billion (a multiplier of 0.5). Thus the money that gets injected into the economy creates a multiplier
effect and promotes more circulation of money by creating

Difference Between Classical And Classical Economic Thought
The history of macroeconomic thought and policy was developed through different phases mainly
marked by the depressions, recessions and expansion of the 1930s, 1960s, 1970s, 1980s, 1990s, and
2000s. Various macroeconomic theories were developed during these periods. Among them,
Keynesian and classical economics addressed economic problems such as unemployment issue with
similarities but also differences.
In this essay, I will identify similarities and differences in Keynesian and classical economic
thought. Then, describe how Keynesian and classical economists address the issue of
unemployment. And finally, I will describe new developments since the 1980s. To identify
similarities in Keynesian and classical economic thought let us first examine their definitions:
Classical economics is the body of macroeconomic thought associated primarily with 19th–century
British economist David Ricardo that focused on the long run and on the forces that determine and
produce growth in an economy's potential output.
Keynesian Economics is the body of macroeconomic thought that asserts that changes in aggregate
demand can create gaps between the actual and potential levels of output, and that such gaps can be
prolonged. It stresses the use of fiscal and monetary policy to close such gaps.
We notice from those definitions that both thoughts focus on how an economy reaches its potential
output through various factors.
Unlike similarities, there are more differences in Keynesian and

The Keynesian School Of Economic Thought
Our economy has evolved from centuries ago to what it is today from the start of supply and
demand and learning how to make trades. The foundations of this learning process has also came
from theories on how to manage and control the economy. This has been built from several thinkers
and theorist implanting their ideas into action and having results in the prosperity or failure of an
economy. As these theories have evolved as well and some with great prosperity they have been
recognized and titled as the Keynesian School of Economic Thought as this is a theory believing
aggregate demand is influenced by public and private economic decisions. There is also the
Monetarism School of Economic Thought which focuses on how the money supply has ... Show
The only thing that really drags down the aggregate demand or GDP would be if the country brought
in more imported goods than anything else. A public decision would be the money that government
programs put into the economy, investing in programs such as education, medical research,
Medicare and other things. In the formula, these variables would be Government spending and
Investment spending. Private decisions are an individual's decisions on where to spend money. In
the formula, this is represented by investment spending and consumption spending. Keynesian
Economics relies on that they believe the government can kickstart the economy by spending money
when in a down period.
Another school of thought is that changes in aggregate demand, whether anticipated or
unanticipated, have their greatest short run effects on real output and employment, not on prices.
John Maynard Keynes said that everything in life is in the short run. The theory believes that just
because something is happening in the short run, may not necessarily mean it will happen in the
long run. He thought the government should get involved when the economy was stagnant to give it
a boost and get it moving again in the short run. They also believe that monetary policy effects,
output and employment only. That makes sense because as the more money that is pumped in, the
more a good needs to be produced and the more goods needing to be produced means the more
people you

Unemployment In America Essay
Introduction The rising unemployment has generated challenges in low income communities.
Unemployment involves a situation where people in a particular community are actively seeking
employment but the employment rates are low. The increased rates of unemployment are
contributed to by factors such as recession periods that adversely affects the economy. Impacts on
the economy in turn affect the labor force leading to loss of employment and reducing the rates of
employment opportunities in the country. The United States has experienced cases of recession
periods and has caused significant negative impacts on the communities and economic growth of the
country. The prevalence of high unemployment rates in low income communities in the U.S ... Show
The New classical economists' theory states that structural unemployment is a reflection of the
government failure to address the unemployment issue. Studies reveal that the Great Depression that
occurred in America and Europe in 1930s led to development of high levels of unemployment that
adversely affected the American economy. The classical theory of economics argued that the effects
of Great Depression on the economy would correct itself if the government does not cause any
interference. It resulted in low levels of productivity in businesses that contributed to loss of
employment and reduced income rates. The effects of Great depression facilitated the development
of these theories to address the rampant rates of unemployment in America. These theories argue the
market mechanisms are effective in addressing unemployment. Consequently, studies indicate that
high unemployment rates contribute to increased levels of violent and higher property crimes in low
income communities. The individuals in low income communities may become violent and move to
cities or other wealthy residential areas in America and steal properties and obtain money for
survival (Burkeman, 2009). Keynesian theory explains on the cyclical unemployment where
individuals in society lose their jobs as a result of decrease in

Essay on Government Spending, Deficits, and Keynesian...
A growing government is opposite to America's economic interests because the various methods of
financing a government – taxes, borrowing, and printing money have harmful effects upon the
economy. There are many reasons why there is a high deficit in the United States such as extensive
spending. This is true because government spending is often economically destructive, regardless of
how it is financed. There are many causes of the steady growth in U.S. trade deficits. There are
many people are against the high deficits especially economists.
"Economists define government intervention in the foreign exchange market as the buying or selling
of foreign exchange for the purpose of manipulating the exchange rate. "(Case, pg. 398) ... Show
Yes, the reason for the high budget deficit matter because many economists feels as though this will
eventually affect our children and/or even our grandchildren. Not only that we must know how to
budget the money. The government needs to know if they need to offer higher interest rates to attract
enough buyers of government debt. Excess amount of borrowing adds to the National debt which
means the Government has to spend more each year. Another reason why it matters we need to cut
out and/or investigate where the wasteful spending is going and if we need to cut back on public
sector spending or by raising the burden. There are few programs I think that we could cut to help in
our financial situation right now such as public assistance. I am all for helping people in need
especially children, senior citizens, and disabled. However, I am not willing to offer or give
assistance to a person who abuses the system. I know several people who receive public assistance
and they are perfectly stable enough to work, but they rather not. If you have been on the program
more than 5 years you should be released. We have allowed some people to take advantage and it
has put a minor dent into the United States spending.

Meg Guild . Mr.Bare . Economics . 31 April 2017. Market
Meg Guild
Mr.Bare
Economics
31 April 2017
Market Place Essay
Five Key Questions about Macroeconomics Policy The recession in 1974–1975 and two other back
to back recessions in 1979–1982, which sent the employment rate to 11%. The inflation rate rose
into double digits then plummeted. A period of Great Moderation came after 1985, and the recession
of 1990–1991 was more manageable than the previous recession. Unfortunately, this period of
tranquility was followed by the Great Recession which caused turmoil in the U.S economy. The
consensus that manifested itself during the Great Moderation is called the "Great Moderation
consensus". It incorporates the belief as monetary policy as the main tool of stabilization, with
skepticism ... Show more content on Helpwriting.net ...
A form of expansionary policy is fiscal policy, which portrays itself in tax cuts, transfer payments,
rebates, and increased government spending. Macroeconomists were more against fiscal policy than
monetary expansion. Keynesian economists gave fiscal policy a pivotal role in combating
recessions. Monetarists contested saying the fiscal policy would be ineffective if the money supply
remained constant, as a result, this view point became rare. Now macroeconomists subscribe to the
idea that fiscal policy, and monetary policy can aggregate demand curve. They also concur that
government should not try to proportion the budget no matter what state the economy is in. They
agree that the budget acts as a balancing option to keep the economy stable. The third question, Can
Monetary and/or fiscal policy reduce unemployment in the long run? The classical macroeconomists
thought the government could not change unemployment. They believed fiscal policy would only
cause a short increase in the real output. Classical economists say that in order to decrease
unemployment, it is imperative to use supply side policies in order to raise the adaptability of labour
markets. The Keynesians thought the complete opposite, they believed that expansionary policies
could be effective in maintaining a long term low unemployment rate. Fiscal policy would boost
aggregate demand curve, and as a result, would create higher output, thus in the end, producing

The Theory Of Keynesian Economics
Introduction
During the Great Depression in the 1930's "classical theory had difficulty in explaining why the
depression kept getting worse" (Cheung, n.d., para. 1). Many economists have attempted to develop
theories that help to explain changing circumstances and why things kept getting worse. John
Maynard Keynes, a British economist also known as the founder of macroeconomics, saw this as an
opportunity and began to develop alternative ideas. His alternative ideas led to the idea of Keynesian
economics.
What is Keynesian Economics? Keynesian economics was used to manage the economy for roughly
forty years until around 1970. "The main plank of Keynes's theory, which has come to bear his
name, is the asser–tion that aggregate ... Show more content on Helpwriting.net ...
3). In order for there to be full employment or lower unemployment
rates the demand of goods needed to remain constant. In order for demand to increase it had to come
from the economy's output of goods and services. "An economy's output of goods and services is the
sum of four components: consumption, investment, government purchases, and net exports (the
difference between what a country sells to and buys from foreign countries)" (Jahan et al., 2014,
para. 4). If savings was more than that of investments, there would be inflation. On the other hand,
Keynes stated that if more went into investments than savings there would be a recession in the
economy. This would mean that consumers would spend less, causing businesses to invest less in the
market. Other well–known economist, such as Adam Smith who felt that government should play no
role in the market, Keynes felt that state intervention was the solution to this problem. According to
Keynes, state intervention was necessary to "moderate the booms and busts in eco–nomic activity,
otherwise known as the business cycle" (Jahan et al., 2014, para. 4). Keynesian felt that state
intervention would promote full employment and price stability and more specifi–cally,
"governments should borrow money and boost demand by pushing the money into the economy.
Once the economy recovered, and was expanding again, governments should pay back the loans"
(John

Keynesian Theory Vs. Supply Side Essay Example

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