Classical Theory Of Employment
•Download as PPT, PDF•
5 likes•2,599 views
Say's law, an idea in classical economics, rejects the possibility of general overproduction. It states that supply creates its own demand. The classical economists believed that savings are always invested, so aggregate supply equals aggregate demand, ensuring full employment. However, they acknowledged that monetary disturbances could cause temporary disequilibria by affecting money demand. Adjustment mechanisms, like interest rate changes, would bring the economy back to equilibrium at full employment over time. So Say's law expressed an equilibrium condition, not something always true.
Report
Share
Report
Share
![Say’s Law and Classical Monetary Policy ,[object Object],[object Object],[object Object],[object Object],[object Object]](https://image.slidesharecdn.com/classicaltheoryofemployment-1319116778-phpapp01-111020082051-phpapp01/85/Classical-Theory-Of-Employment-1-320.jpg)
![Bases of Say’s Law: I ,[object Object],[object Object],[object Object]](data:image/gif;base64,R0lGODlhAQABAIAAAAAAAP///yH5BAEAAAAALAAAAAABAAEAAAIBRAA7)
Recommended
Theory of emplyment
It includes:
CLASSICAL THEORY OF EMPLOYMENT,
SAY’S LAW OF MARKET,
Determination of Employment and Output in the Classical Model,
Keynesian Theory of Employment,
Principle of Effective Demand, and on many more topics...
Classical theory of economics
Classical economics is a macroeconomic theory based on flexible prices, Say's law that supply creates its own demand, and equality between savings and investment. It traces back to Adam Smith and assumes markets clear naturally, leading to full employment. In contrast, Keynesian economics recognizes unemployment and a need for aggregate demand management by the government.
The classical theory of income and employment
Classical economists believed that a free market would always achieve full employment through flexible wages and prices. According to Say's Law, increased production would create its own demand through higher incomes. However, Keynes criticized this view, arguing that reduced wages would lower aggregate demand by reducing incomes. The classical theory was valid for individual firms but failed to consider economy-wide effects of changes in income and demand.
Theory of income and employment chap 1
Theory of income and employment, classical theory of employment, say's law of market, supply creates its own demand, theory of effective demand
classical theory of employement
The classical theory of employment and output assumed full employment, perfect competition, and wage-price flexibility. It was based on Say's Law that supply creates its own demand and the quantity theory of money that money only impacts prices, not output. Under these assumptions, the economy would always attain general equilibrium with full employment determined by the intersection of labor demand and supply curves. However, the Great Depression showed the flaws in these assumptions and need for government intervention.
Theory of employment
The document discusses the meaning and types of employment and unemployment. It defines employment as engaging in gainful work, and unemployment as not being engaged in work. There are different types of unemployment, including voluntary, involuntary, frictional, technical, structural, cyclical, and seasonal. The classical theory of employment from Adam Smith, Pigou, Ricardo and Mill holds that full employment is normal in the long run in a free market economy, and that involuntary unemployment should not exist except due to government or union intervention.
J.b.say
Jean-Baptiste Say introduced several important economic concepts, including distinguishing between factors of production (land, labor, capital) and introducing the concept of the entrepreneur. He is best known for "Say's Law", which states that supply creates its own demand. Say's Law was an important idea in classical economics and implied that general overproduction was impossible. It was based on ideas that savings equal investment, and that people only hold money for transactions, not as an asset. While Say's Law may have been intended to describe an equilibrium condition, it was often interpreted as being true at all times, which many classical economists like Mill disagreed with.
Theories of Employment
This document provides an overview of two major theories of employment: the classical theory and Keynes' theory.
The classical theory states that employment is determined by the interaction of labor supply and demand in the market. It believes in full employment and that unemployment results from rigid wages or interference with free markets. Keynes' theory views employment from the demand side and says it depends on effective demand. Effective demand is driven by aggregate supply and demand. Unemployment can result from a deficiency in effective demand. The theories differ in their assumptions around flexibility of wages and prices and whether they examine things in the short or long run.
Recommended
Theory of emplyment
It includes:
CLASSICAL THEORY OF EMPLOYMENT,
SAY’S LAW OF MARKET,
Determination of Employment and Output in the Classical Model,
Keynesian Theory of Employment,
Principle of Effective Demand, and on many more topics...
Classical theory of economics
Classical economics is a macroeconomic theory based on flexible prices, Say's law that supply creates its own demand, and equality between savings and investment. It traces back to Adam Smith and assumes markets clear naturally, leading to full employment. In contrast, Keynesian economics recognizes unemployment and a need for aggregate demand management by the government.
The classical theory of income and employment
Classical economists believed that a free market would always achieve full employment through flexible wages and prices. According to Say's Law, increased production would create its own demand through higher incomes. However, Keynes criticized this view, arguing that reduced wages would lower aggregate demand by reducing incomes. The classical theory was valid for individual firms but failed to consider economy-wide effects of changes in income and demand.
Theory of income and employment chap 1
Theory of income and employment, classical theory of employment, say's law of market, supply creates its own demand, theory of effective demand
classical theory of employement
The classical theory of employment and output assumed full employment, perfect competition, and wage-price flexibility. It was based on Say's Law that supply creates its own demand and the quantity theory of money that money only impacts prices, not output. Under these assumptions, the economy would always attain general equilibrium with full employment determined by the intersection of labor demand and supply curves. However, the Great Depression showed the flaws in these assumptions and need for government intervention.
Theory of employment
The document discusses the meaning and types of employment and unemployment. It defines employment as engaging in gainful work, and unemployment as not being engaged in work. There are different types of unemployment, including voluntary, involuntary, frictional, technical, structural, cyclical, and seasonal. The classical theory of employment from Adam Smith, Pigou, Ricardo and Mill holds that full employment is normal in the long run in a free market economy, and that involuntary unemployment should not exist except due to government or union intervention.
J.b.say
Jean-Baptiste Say introduced several important economic concepts, including distinguishing between factors of production (land, labor, capital) and introducing the concept of the entrepreneur. He is best known for "Say's Law", which states that supply creates its own demand. Say's Law was an important idea in classical economics and implied that general overproduction was impossible. It was based on ideas that savings equal investment, and that people only hold money for transactions, not as an asset. While Say's Law may have been intended to describe an equilibrium condition, it was often interpreted as being true at all times, which many classical economists like Mill disagreed with.
Theories of Employment
This document provides an overview of two major theories of employment: the classical theory and Keynes' theory.
The classical theory states that employment is determined by the interaction of labor supply and demand in the market. It believes in full employment and that unemployment results from rigid wages or interference with free markets. Keynes' theory views employment from the demand side and says it depends on effective demand. Effective demand is driven by aggregate supply and demand. Unemployment can result from a deficiency in effective demand. The theories differ in their assumptions around flexibility of wages and prices and whether they examine things in the short or long run.
Classical theory of employment
Classical economists believed that full employment was the normal state of the economy and any deviation from it was abnormal. They assumed a closed economy with homogeneous goods, laissez-faire policies, and a barter system. According to Say's law, supply creates its own demand so overproduction is not possible. The classical theory held that output and employment are determined by production functions and the demand and supply of labor, with diminishing marginal returns. Labor market equilibrium occurs at the wage rate where demand and supply of labor intersect.
Presentation on keynesian theory
This document provides an overview of classical and Keynesian theories of income and employment. It discusses key differences between the two theories, including how they determine full employment. The classical theory believes full employment is the normal state, while Keynes argued unemployment can persist due to insufficient aggregate demand. The document then explains Keynesian concepts like aggregate demand, consumption, investment and their relationship to national income and output. It also outlines Keynes' model and equilibrium conditions between markets.
Keynesian theory
Keynesian theory rejects Say's law that supply creates its own demand. It argues that the level of income and employment is determined by aggregate demand and supply in the short run, and that equilibrium could be below full employment. The key determinants of income are consumption, investment, and saving. The effective demand curve shows equilibrium between aggregate demand and supply. Keynes believed full employment could be achieved by increasing aggregate demand through policies like government spending.
school of Thought in Economics
1. Classical economics focused on laissez-faire policies and free markets while Keynesian economics emphasized government intervention.
2. Key figures in classical economics included Adam Smith and David Ricardo who believed that free markets would naturally lead to full employment without government intervention.
3. Keynesian economics emerged in response to the Great Depression and rejected classical ideas. Keynes argued that markets may not reach full employment on their own and that government could boost demand through spending and taxation policies.
Major Schools Of Economics
Classical, Keynesian, monetarist, rational expectations, public choice, supply-side economics and libertarianism are the major schools of economic thought discussed. Classical economics viewed the economy as self-adjusting without government intervention, while Keynesian economics focused on government's role in achieving goals like growth. Excessive intervention led to problems, giving rise to monetarism focusing on controlling money supply and rational expectations theory criticizing policies. Public choice economics examined how resources are allocated politically, finding government failure. Supply-side economics emphasized tax cuts to boost growth and revenues. Libertarianism viewed government as coercive and interfering with freedom.
Keynes keynesian-new keynesian-abridged
John Maynard Keynes was an influential British economist born in 1883. He developed theories that challenged classical economic thought, such as arguing that saving does not equal investment and that aggregate demand, not supply, is the key driver of economic activity. Keynes published his seminal work The General Theory of Employment, Interest and Money in 1936, which revolutionized economic thinking and laid the foundation for Keynesian economics. The Keynesian view became highly influential in the post-World War 2 era.
Classical vs keynesian theory
Basic principles underlying both the Classical and the Keynesian schools of thought within Economics.
Work I produced whilst studying Monetary Economics in my second year of study at the University of Brighton.
Ryan Reardon Finance and Investment student.
Classical model of employment
Main features of the Classical theory of employment and income. Automatic equilibrium achievement of the market.
Chapter 1 keynes and the classic (Scarth)
This document provides an overview of macroeconomics topics that will be covered in the Macroeconomics 2 course, including integrating classical and Keynesian schools of thought, the development of the New Neoclassical Synthesis, short and long run issues, and applications of macroeconomic models. It also summarizes the key differences between classical and Keynesian economics, including their views on unemployment, flexibility of wages and prices, and the appropriate role of government intervention in the economy.
Meeting 8 - Keynesian model of unemployment (Macroeconomics)
The document discusses key concepts of the Keynesian model of unemployment including:
- Keynes rejected the idea of full employment and wage flexibility, instead arguing wages are rigid which can cause involuntary unemployment.
- Equilibrium in the labor market occurs at less than full employment when the demand for labor intersects the horizontal portion of the rigid wage supply curve.
- Keynes argued that government intervention through fiscal and monetary policies can help remedy unemployment by increasing aggregate demand.
- New Keynesian and neo-Keynesian models build on Keynes' ideas incorporating rational expectations and imperfect competition to explain why prices and wages adjust slowly.
Classical theory of employment
In Macroeconomics Income and Employment are interchangeable terms, since in the short-run National income depends on the total volume of employment or economic activity in the country. As income and employment are synonymous the employment theory is also called income theory.
It should be clear to readers that the classical economists did not formulate any specific theory of employment as such. They only laid down certain postulates which subsequently developed as a theory.
Classical theory of employment
The classical model of employment is based on the assumptions of full employment, laissez-faire, a self-adjusting economy, a barter system, and a closed economy. It is based on Say's law that supply creates its own demand. The model assumes wages and prices are flexible and will adjust to achieve full employment equilibrium in the labor market. If unemployment occurs due to a fall in demand, a general wage cut will increase demand for labor and eliminate unemployment, restoring full employment.
classical vs keynesian economics
This document provides an overview of classical economics and compares it to modern/Keynesian economics. Some key points:
- Classical economics is based on flexible prices and wages, and the belief that savings will automatically equal investment through Say's Law. It sees the economy as self-regulating in the long run.
- Modern/Keynesian economics, developed by John Maynard Keynes, recognizes situations where savings and investment are not equal in the short run. It advocates for government intervention through spending and policies to stimulate demand and pull the economy out of slumps.
- Compared to classical economics which sees little role for government spending, Keynesian economics relies on government spending as a key part of
Says law
Say's Law is a classical economic idea that rejects the possibility of general overproduction or "gluts". It states that "supply creates its own demand". There are two bases of Say's Law: 1) all income not consumed is saved and all saving is invested, so there cannot be too much saving, and 2) people only hold money for transactions so will consume or invest any excess money balances. Say's Law implies full employment and that aggregate supply always equals aggregate demand (Say's identity). However, classical economists also discussed how monetary disturbances could cause temporary excess supply, suggesting Say's equality - an equilibrium condition - is a better description of their view, rather than Say's identity being always true. They believed markets would adjust
The Great Depression of 1930's: Classical vs Keynes
This presentation gives a brief knowledge about great depression of 1930's and difference in view point of classical theory and Keynesian theory.
Meeting 6 - Unemployment Keynes-Classic (Macroeconomics)
The document summarizes the key differences between classical and Keynesian theories of employment and unemployment. The classical theory assumed full employment and explained brief periods of unemployment as frictional, while Keynes argued unemployment could persist due to insufficient aggregate demand. The document outlines the assumptions and mechanics of both theories, including Say's law, flexibility of wages and prices, and the role of money. It also compares how the two theories approach concepts like interest rates, statics vs dynamics, and the roles of fiscal and monetary policy.
Keynes and critique of neo classical model
Keynes criticized classical economic assumptions that macroeconomics is simply the sum of microeconomics. He argued that if total savings increases in an economy, it can lead to a decrease in total consumption and aggregate demand, resulting in lower investment, output, income, and employment. Keynes also believed that savings do not automatically get invested, unlike in neoclassical theories. Savings are a leakage from the income stream and induced private investment depends more on expected profits from consumption than interest rates alone. According to Keynes, capitalist economies are inherently unstable without government intervention, and recessions can occur even in equilibrium states with less than full employment.
Theories of income output and employment
This document presents theories of income, output, and employment from a Keynesian perspective. It introduces John Maynard Keynes and his work, including his general theory. It discusses Keynesian beliefs that markets will not automatically lead to full employment and that the level of output and national income can adjust. The main Keynesian theories are outlined, including the labor market, money market, multiplier effect, and inflation theory. The document then explains Keynes' theory of income, output, and employment determination through the intersection of aggregate demand and supply curves. It concludes that in the short run, aggregate demand determines employment, output, and income levels according to Keynes.
Classical versus keynes
This document provides an overview of Keynesian economics and the development of macroeconomic thought after Keynes. It discusses:
1) Key aspects of Keynes' work including his critique of classical assumptions, development of aggregate demand and supply analysis, and emphasis on unemployment equilibrium.
2) Post-Keynesian developments like the Hicks-Hansen IS-LM model, the Phillips curve, and the emergence of inflation in the 1960s.
3) Milton Friedman's monetarist critique which emphasized the stability of demand for money and argued that monetary policy focused on steady money growth was better than Keynesian fiscal policies at achieving price stability and low unemployment.
Simple keynesian model
This document provides an overview of the simple Keynesian model of economics. It discusses the model's key assumptions, including that it is a one-sector closed economy model with constant prices and fixed resources in the short run. Equilibrium occurs when aggregate demand (planned expenditure) equals aggregate supply (actual output). The model was developed by John Maynard Keynes to explain unemployment during the Great Depression when demand was weak and actual output fell below potential output.
The wealth of the world v3
The document presents a new economic theory that views wealth as having three types - raw materials, transformation ability, and finished products - and being determined globally by supply and demand. It argues that while the total real value of wealth worldwide is fixed, the relative value of different assets varies between countries. When a country's currency value becomes misaligned with global values due to overprinting, market forces will inevitably cause inflation to correct the imbalance.
MACROECONOMICS-CH4
This chapter discusses the relationship between money, inflation, and prices according to the quantity theory of money. It introduces key concepts such as the money supply, monetary policy, the quantity equation, velocity of money, and how the money supply and inflation are connected. The quantity theory predicts a direct relationship between the growth of the money supply and the inflation rate in the long run.
More Related Content
What's hot
Classical theory of employment
Classical economists believed that full employment was the normal state of the economy and any deviation from it was abnormal. They assumed a closed economy with homogeneous goods, laissez-faire policies, and a barter system. According to Say's law, supply creates its own demand so overproduction is not possible. The classical theory held that output and employment are determined by production functions and the demand and supply of labor, with diminishing marginal returns. Labor market equilibrium occurs at the wage rate where demand and supply of labor intersect.
Presentation on keynesian theory
This document provides an overview of classical and Keynesian theories of income and employment. It discusses key differences between the two theories, including how they determine full employment. The classical theory believes full employment is the normal state, while Keynes argued unemployment can persist due to insufficient aggregate demand. The document then explains Keynesian concepts like aggregate demand, consumption, investment and their relationship to national income and output. It also outlines Keynes' model and equilibrium conditions between markets.
Keynesian theory
Keynesian theory rejects Say's law that supply creates its own demand. It argues that the level of income and employment is determined by aggregate demand and supply in the short run, and that equilibrium could be below full employment. The key determinants of income are consumption, investment, and saving. The effective demand curve shows equilibrium between aggregate demand and supply. Keynes believed full employment could be achieved by increasing aggregate demand through policies like government spending.
school of Thought in Economics
1. Classical economics focused on laissez-faire policies and free markets while Keynesian economics emphasized government intervention.
2. Key figures in classical economics included Adam Smith and David Ricardo who believed that free markets would naturally lead to full employment without government intervention.
3. Keynesian economics emerged in response to the Great Depression and rejected classical ideas. Keynes argued that markets may not reach full employment on their own and that government could boost demand through spending and taxation policies.
Major Schools Of Economics
Classical, Keynesian, monetarist, rational expectations, public choice, supply-side economics and libertarianism are the major schools of economic thought discussed. Classical economics viewed the economy as self-adjusting without government intervention, while Keynesian economics focused on government's role in achieving goals like growth. Excessive intervention led to problems, giving rise to monetarism focusing on controlling money supply and rational expectations theory criticizing policies. Public choice economics examined how resources are allocated politically, finding government failure. Supply-side economics emphasized tax cuts to boost growth and revenues. Libertarianism viewed government as coercive and interfering with freedom.
Keynes keynesian-new keynesian-abridged
John Maynard Keynes was an influential British economist born in 1883. He developed theories that challenged classical economic thought, such as arguing that saving does not equal investment and that aggregate demand, not supply, is the key driver of economic activity. Keynes published his seminal work The General Theory of Employment, Interest and Money in 1936, which revolutionized economic thinking and laid the foundation for Keynesian economics. The Keynesian view became highly influential in the post-World War 2 era.
Classical vs keynesian theory
Basic principles underlying both the Classical and the Keynesian schools of thought within Economics.
Work I produced whilst studying Monetary Economics in my second year of study at the University of Brighton.
Ryan Reardon Finance and Investment student.
Classical model of employment
Main features of the Classical theory of employment and income. Automatic equilibrium achievement of the market.
Chapter 1 keynes and the classic (Scarth)
This document provides an overview of macroeconomics topics that will be covered in the Macroeconomics 2 course, including integrating classical and Keynesian schools of thought, the development of the New Neoclassical Synthesis, short and long run issues, and applications of macroeconomic models. It also summarizes the key differences between classical and Keynesian economics, including their views on unemployment, flexibility of wages and prices, and the appropriate role of government intervention in the economy.
Meeting 8 - Keynesian model of unemployment (Macroeconomics)
The document discusses key concepts of the Keynesian model of unemployment including:
- Keynes rejected the idea of full employment and wage flexibility, instead arguing wages are rigid which can cause involuntary unemployment.
- Equilibrium in the labor market occurs at less than full employment when the demand for labor intersects the horizontal portion of the rigid wage supply curve.
- Keynes argued that government intervention through fiscal and monetary policies can help remedy unemployment by increasing aggregate demand.
- New Keynesian and neo-Keynesian models build on Keynes' ideas incorporating rational expectations and imperfect competition to explain why prices and wages adjust slowly.
Classical theory of employment
In Macroeconomics Income and Employment are interchangeable terms, since in the short-run National income depends on the total volume of employment or economic activity in the country. As income and employment are synonymous the employment theory is also called income theory.
It should be clear to readers that the classical economists did not formulate any specific theory of employment as such. They only laid down certain postulates which subsequently developed as a theory.
Classical theory of employment
The classical model of employment is based on the assumptions of full employment, laissez-faire, a self-adjusting economy, a barter system, and a closed economy. It is based on Say's law that supply creates its own demand. The model assumes wages and prices are flexible and will adjust to achieve full employment equilibrium in the labor market. If unemployment occurs due to a fall in demand, a general wage cut will increase demand for labor and eliminate unemployment, restoring full employment.
classical vs keynesian economics
This document provides an overview of classical economics and compares it to modern/Keynesian economics. Some key points:
- Classical economics is based on flexible prices and wages, and the belief that savings will automatically equal investment through Say's Law. It sees the economy as self-regulating in the long run.
- Modern/Keynesian economics, developed by John Maynard Keynes, recognizes situations where savings and investment are not equal in the short run. It advocates for government intervention through spending and policies to stimulate demand and pull the economy out of slumps.
- Compared to classical economics which sees little role for government spending, Keynesian economics relies on government spending as a key part of
Says law
Say's Law is a classical economic idea that rejects the possibility of general overproduction or "gluts". It states that "supply creates its own demand". There are two bases of Say's Law: 1) all income not consumed is saved and all saving is invested, so there cannot be too much saving, and 2) people only hold money for transactions so will consume or invest any excess money balances. Say's Law implies full employment and that aggregate supply always equals aggregate demand (Say's identity). However, classical economists also discussed how monetary disturbances could cause temporary excess supply, suggesting Say's equality - an equilibrium condition - is a better description of their view, rather than Say's identity being always true. They believed markets would adjust
The Great Depression of 1930's: Classical vs Keynes
This presentation gives a brief knowledge about great depression of 1930's and difference in view point of classical theory and Keynesian theory.
Meeting 6 - Unemployment Keynes-Classic (Macroeconomics)
The document summarizes the key differences between classical and Keynesian theories of employment and unemployment. The classical theory assumed full employment and explained brief periods of unemployment as frictional, while Keynes argued unemployment could persist due to insufficient aggregate demand. The document outlines the assumptions and mechanics of both theories, including Say's law, flexibility of wages and prices, and the role of money. It also compares how the two theories approach concepts like interest rates, statics vs dynamics, and the roles of fiscal and monetary policy.
Keynes and critique of neo classical model
Keynes criticized classical economic assumptions that macroeconomics is simply the sum of microeconomics. He argued that if total savings increases in an economy, it can lead to a decrease in total consumption and aggregate demand, resulting in lower investment, output, income, and employment. Keynes also believed that savings do not automatically get invested, unlike in neoclassical theories. Savings are a leakage from the income stream and induced private investment depends more on expected profits from consumption than interest rates alone. According to Keynes, capitalist economies are inherently unstable without government intervention, and recessions can occur even in equilibrium states with less than full employment.
Theories of income output and employment
This document presents theories of income, output, and employment from a Keynesian perspective. It introduces John Maynard Keynes and his work, including his general theory. It discusses Keynesian beliefs that markets will not automatically lead to full employment and that the level of output and national income can adjust. The main Keynesian theories are outlined, including the labor market, money market, multiplier effect, and inflation theory. The document then explains Keynes' theory of income, output, and employment determination through the intersection of aggregate demand and supply curves. It concludes that in the short run, aggregate demand determines employment, output, and income levels according to Keynes.
Classical versus keynes
This document provides an overview of Keynesian economics and the development of macroeconomic thought after Keynes. It discusses:
1) Key aspects of Keynes' work including his critique of classical assumptions, development of aggregate demand and supply analysis, and emphasis on unemployment equilibrium.
2) Post-Keynesian developments like the Hicks-Hansen IS-LM model, the Phillips curve, and the emergence of inflation in the 1960s.
3) Milton Friedman's monetarist critique which emphasized the stability of demand for money and argued that monetary policy focused on steady money growth was better than Keynesian fiscal policies at achieving price stability and low unemployment.
Simple keynesian model
This document provides an overview of the simple Keynesian model of economics. It discusses the model's key assumptions, including that it is a one-sector closed economy model with constant prices and fixed resources in the short run. Equilibrium occurs when aggregate demand (planned expenditure) equals aggregate supply (actual output). The model was developed by John Maynard Keynes to explain unemployment during the Great Depression when demand was weak and actual output fell below potential output.
What's hot (20)
Meeting 8 - Keynesian model of unemployment (Macroeconomics)
Meeting 8 - Keynesian model of unemployment (Macroeconomics)
The Great Depression of 1930's: Classical vs Keynes
The Great Depression of 1930's: Classical vs Keynes
Meeting 6 - Unemployment Keynes-Classic (Macroeconomics)
Meeting 6 - Unemployment Keynes-Classic (Macroeconomics)
Similar to Classical Theory Of Employment
The wealth of the world v3
The document presents a new economic theory that views wealth as having three types - raw materials, transformation ability, and finished products - and being determined globally by supply and demand. It argues that while the total real value of wealth worldwide is fixed, the relative value of different assets varies between countries. When a country's currency value becomes misaligned with global values due to overprinting, market forces will inevitably cause inflation to correct the imbalance.
MACROECONOMICS-CH4
This chapter discusses the relationship between money, inflation, and prices according to the quantity theory of money. It introduces key concepts such as the money supply, monetary policy, the quantity equation, velocity of money, and how the money supply and inflation are connected. The quantity theory predicts a direct relationship between the growth of the money supply and the inflation rate in the long run.
Austrian Business Cycle Theory
The document discusses Austrian Business Cycle Theory, which argues that business cycles are caused by central bank intervention through lowering interest rates and expanding the money supply. This artificially stimulates the economy by making credit appear more abundant than savings allow, leading to malinvestment and an unsustainable boom that must eventually bust when investments fail. By contrast, proponents of Austrian economics believe that a laissez-faire approach without government intervention would mitigate the business cycle by allowing market prices and the natural interest rate to clear supply and demand.
Money, the Price Level, and Inflation
The price level is a measure of the average price in an economy and is measured at a point in time.. The rate of inflation is the rate of change of.
Macro economics, George Mankiw, 4- Money & inflation
Macro economics, George Mankiw, 4- Money & inflation
10Trade DeficitsCauses andConsequencesDavid M. Go.docx
10
Trade Deficits:
Causes and
Consequences
David M. Gould
Senior Economist and Policy Advisor
Federal Reserve Bank of Dallas
Roy J. Ruffin
Research Associate
Federal Reserve Bank of Dallas
and
M. D. Anderson Professor of Economics
University of Houston
For the most part, trade deficits
or surpluses are merely a reflection
of a country’s international
borrowing or lending profile
over time. …Neither one, by itself,
is a better indicator of long-run
economic growth than the other.
On September 19, 1996, the Washington
Post, Wall Street Journal, and New York Times
reported trade figures released by the U.S. De-
partment of Commerce showing that the monthly
U.S. trade deficit increased by $3.5 billion in July
1996. Almost unanimously, analysts quoted in
the articles stated that the recent trade figures
showed weakness in the U.S. economy. The
news was not earth shattering, nor was the
interpretation of the increasing trade deficit con-
troversial. The conventional wisdom is that the
trade balance reflects a country’s competitive
strength —the lower the trade deficit, the greater
a country’s competitive strength and the higher
its economic growth.
But the conventional wisdom on trade bal-
ances stands in stark contrast to that of the
economics profession in general. Standard eco-
nomic thought typically regards trade deficits as
the inevitable consequence of a country’s pref-
erences regarding saving and the productivity of
its new capital investments. Trade deficits are
not necessarily seen as a cause for concern, nor
are they seen as good predictors of a country’s
future economic growth. For example, large trade
deficits may signal higher rates of economic
growth as countries import capital to expand
productive capacity. However, they also may
reflect a low level of savings and make countries
more vulnerable to external economic shocks,
such as dramatic reversals of capital inflows. Is
the conventional wisdom wrong, or has the
economics profession just failed to keep its
theories well-grounded in fact?
Certainly, anyone can create a theory about
trade deficits and speculate about how they
may, or may not, be related to a nation’s eco-
nomic performance. The paramount question is
not whether one can create a theory, but whether
it is logically consistent and stands up to em-
pirical observation.
The purpose of this article is to answer the
question of whether trade deficits, bilateral as
well as overall, are related to a country’s eco-
nomic performance. We begin by discussing the
origin of popular views on trade deficits and
compare these views with current economic
thought on trade balances. Next, we discuss the
relationship between international capital flows
and trade balances and relate them to economic
growth. We then empirically examine the rela-
tionship between trade deficits and long-run
economic growth.
The evolution of ideas about trade balances
The mercantilists. Much of the current
popular thinking on trade balance ...
Monetary and Fiscal Policy Q&A
This document contains a question and answer session about monetary and fiscal policy. It discusses several key points:
- Countries usually use a combination of monetary and fiscal policy, but political views can shape which is emphasized. For example, Ronald Reagan focused on tax cuts over increased spending.
- Government agencies look for early signs, like changes in housing or unemployment, that the economy may slow down before enacting monetary or fiscal stimulus.
- Examples of fiscal stimulus include infrastructure projects, education spending, welfare programs, and new government agencies. Monetary tools besides interest rates include open market operations and reserve requirements.
- "Supply-side" fiscal policy focuses on business tax cuts while "demand-side" policy
Money money
1. The document discusses several key concepts related to money including its functions as a medium of exchange, unit of account, and store of value. It also discusses different monetary aggregates like M1, M2, and M3.
2. The quantity theory of money posits that the overall price level in an economy is determined by the supply of money, and that increasing the money supply will cause proportionate increases in the price level over the long run.
3. When the central bank increases the money supply, it can lead to inflation as prices rise in response to bring money supply and demand into equilibrium.
Worth: What should you be mindful of in the current economic cycle?
The document discusses the current economic cycle and signs that the economy may be slowing down after nearly a decade of growth. It notes that while economic numbers have been strong, interest rates have risen several times in recent years and indicators like the CAPE ratio suggest the market may be overvalued. Rather than trying to time the market, the document recommends investors hedge risks by taking advantage of tax laws to protect assets and reduce downside if a market correction occurs.
State or Market: Mystery of Money-Revealed
{writeup/Video: http://bit.ly/azGian01A} There is an age-old controversy regarding money. Free market proponents believe that money emerges naturally to facilitate exchange among private parties. State Theorist hold that money is a creation of the state, which acquires value by force of law. Giannini resolves this controversy by showing that both state and market are necessary aspects of money.
Liquidity preference theory
Keynes' liquidity preference theory holds that individuals and firms demand to hold cash, or liquidity, for three main motives: transaction, precautionary, and speculative. The transaction motive refers to holding cash for daily transactions, while the precautionary motive involves holding cash as a buffer against unexpected events. The speculative motive refers to holding cash in order to take advantage of anticipated price changes in bonds and securities. Together these three motives determine the overall demand for money, or liquidity preference, in the economy. The interest rate is determined by the interaction of liquidity preference and the fixed money supply. When liquidity preference is very high, so that demand for money vastly exceeds supply even at very low interest rates, monetary policy
Pertemuan 13 monetary and fiscal policy
This document discusses macroeconomic concepts including the real and monetary sectors of the economy, the interaction of consumers, savers, lenders, borrowers and monetary authorities in determining national income and interest rates. It presents a basic model of how equilibrium income and interest rates are determined by the balance of money demand and supply. It then discusses applications of the model including the effects of fiscal and monetary policy changes.
IceCap Asset Management Limited Global Markets 2013.1
She adores hats. She is always very polite and respectful of others. She waves to everyone, and consistently avoids conflict. She is a lady; she is The Queen.
Without a doubt, Queen Elizabeth lives a life quite unlike everyone else in the World – after all, royalty does have its privileges. Yet, when it comes to investing, the Queen is swimming in the same pool of stock market sharks as us common people.
Like everyone else, she pours through her quarterly statements to see how she’s fared. And like everyone else, she loves to make money and simply deplores negative returns. It was rumored that the 2008 crisis hit her particularly hard – over USD 40 million in stock market losses.
This experience must have jilted something, as when The Queen was visiting the esteemed London School of Economics she asked the professor a rather “un-queen” like question – why did economists fail to predict the biggest global recession since the Great Depression?
1. Interestingly enough, while I wont stake a claim to any politi.docx
1. Interestingly enough, while I won't stake a claim to any political party on this post, I have stood by one claim since I've been old enough to vote. I may not approve of the President or his actions; one thing is sure; I don't want his job either. I will take the same approach here. I believe government regulations could've helped prevent the major credit crisis of 2008 in many ways. However, as I have suggested, I don't necessarily have any full-proof ideas either. Regardless of the company, group, or entity, almost every organization has a series of checks and balances. For example, I can't help but wonder what condition people might be in without the formation of the FDA to regulate food and drugs to keep businesses in line (Seaquist, 2012). If you contemplate communist Germany during the rule of Hitler, aside from the mass genocide that spread through the area like wildfire, one more thing stands out. There was little to no freedom.
We, as humans, have proven that we are cyclical people. As mentioned, during WWII, many people had no freedom. From the opposite perspective, why do I need a babysitter when my wife and I go out to dinner? Primarily because the freedom otherwise given to a three and one-year-old would enable naive and creative minds to endanger themselves. There must be a balance, and there must be a group or entity with the power to prevent catastrophic issues like the credit crisis from happening. Having regulations in place would help both the greater good and businesses, although, at times, it may not seem like it. Looking back, I would be interested to learn if the investors and bankers that wanted a huge return on their money would do it all again had they known the impact of their actions prior to investing. Regardless of the situation, there must be a balance in all things. How do I know? Every single time I lose my balance, I fall.
2. I recall the time when everyone seemed to be living above their means, purchasing homes that they could not afford, cashing in equity on said home, and then using the money to purchase additional items. This type of greed and unwise financial dealings gave birth to the destruction of financial markets. The credit crisis of 2008 often referred to as the Great Recession is by far one of the worst economic down turns of our time. “Excessive borrowing, lending, and investment were inextricably interconnected through a range of transaction structures derived from well understood techniques of securitization. Essentially, securitization is a transaction structure in which loans (such as loans secured by residential real estate, i.e., mortgages) are pooled together ("repackaged") as collateral underlying the issuance of securities, predominantly debt securities”. The event caused great financial lost and caused homes to decrease greatly in value. However, after every crisis, the question is posed “what can be done to prevent this from happening again?”
The government is ...
The concept of the quantity theory of money
The document summarizes the quantity theory of money (QTM), which states that increases in the money supply directly cause inflation. The QTM is expressed by the Fisher equation as MV=PT, where M is the money supply, V is velocity, P is price level, and T is transactions. The QTM assumes V and T are constant, though these assumptions have been criticized. The theory formed the basis for monetarism and was popular in the 1980s but faced criticisms over strictly controlling money supply.
December 2014 IceCap Global Outlook
Our global macro outlook provides a unique perspective of the world covering the important issues that affect your investment portfolio.
MPCB Lesson #2 (Feb 6, 2022).pptx
This document discusses various theories of monetary policy and inflation. It begins by explaining that less developed countries often struggle with high inflation and unemployment due to low production and high population growth. It then discusses monetary theory, including the quantity theory of money formula MV=PQ. It notes that monetary theory is controlled by central governments in many developing economies. The document also discusses criticisms of monetary theory, definitions of inflation, causes of inflation according to Keynesian and monetarist theories, examples of hyperinflation and stagflation, negative inflation/deflation, and the objectives of monetary policies.
Krugman IS-LM Model
IS-LM is a model that reconciles two views of how interest rates are determined: the loanable funds approach and the liquidity preference approach. It shows these as two curves (IS and LM) that intersect, determining both GDP and the interest rate. The IS curve shows the combinations of interest rates and GDP consistent with loanable funds, while the LM curve shows the combinations consistent with liquidity preference. This model is useful for understanding situations like the current economic crisis, where private demand has fallen so much that the economy remains depressed even at a zero interest rate, known as a liquidity trap. In a liquidity trap, the LM curve is flat at zero interest since cash would be held instead of bonds if rates
Note classical
This lecture note introduces classical macroeconomic theory, which examines the linkages between interest rates, money, output, and inflation. It will first cover classical monetary theory, which assumes money is neutral and its supply only determines prices. It then presents a basic classical model of the real economy with aggregate supply and demand. Equilibrium output and interest rates are determined by the intersection of these curves. Money enters by facilitating transactions but does not affect real variables. Money demand depends on nominal income and interest rates, determining equilibrium money holdings and the price level.
Chapter19 mechanical vibrations
1. The document contains solutions to chapter 19 homework problems about the quantity theory of money and theories of the demand for money. It calculates velocity of money, effects of changes in the money supply and velocity on nominal GDP, and analyzes how interest rates, transactions costs, and expectations affect the speculative demand for money according to theories by Keynes, Friedman, Baumol, and Tobin.
2. It finds that banning credit cards would reduce velocity as people hold more money for transactions. If money supply increases by 300% while velocity and output stay constant, price level must also rise by 300% to restore full employment. Tobin argued people hold both money and bonds due to risk preferences.
Similar to Classical Theory Of Employment (20)
Macro economics, George Mankiw, 4- Money & inflation
Macro economics, George Mankiw, 4- Money & inflation
10Trade DeficitsCauses andConsequencesDavid M. Go.docx
10Trade DeficitsCauses andConsequencesDavid M. Go.docx
Worth: What should you be mindful of in the current economic cycle?
Worth: What should you be mindful of in the current economic cycle?
IceCap Asset Management Limited Global Markets 2013.1
IceCap Asset Management Limited Global Markets 2013.1
1. Interestingly enough, while I wont stake a claim to any politi.docx
1. Interestingly enough, while I wont stake a claim to any politi.docx
Classical Theory Of Employment
- 3. Savings and Investment S I i S & I i* If the amount people wish to save increases shifting S to S’ the equilibrium i rate falls S’ i’