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Theories of Economics, US Economic Policy, Economic Indicators, and the Global Economy. The major theorists in each area are:. 1) Classical. Adam SMITH. 2)Keynesian. John Maynard KEYNES. 3) Monetarist. Milton FRIEDMAN Friedrich August Von HAYEK. CLASSICAL THEORY.
John Maynard KEYNES
Friedrich August Von HAYEK
The term ‘classical’ refers to work done by a group of economists in the 18th and 19th centuries. Much of this work was developing theories about the way markets and market economies work. Much of this work has subsequently been updated by modern economists.
Adam Smith argues that it was market forces that ensured the production of goods and services, ensuring profit. A laissez-faire environment would increase competition and keep costs down. All this can be done without GOVERNMENT INTERVENTION.
This was the basis of the free market economy.
Keynesian economics is a theory suggested by John Maynard Keynes in which government spending and taxation is used to stimulate the economy. This theory is also called fiscal policies or DEMAND-SIDE ECONOMICS.
John Maynard KEYNES (1883-1946) is perhaps one of the best known economists. His work changed the whole face of post-World War II economic policy.
*graduate of Cambridge --studied Classics and Math.
Keynes felt that a recession (or slump or trough) was a short-run problem stemming from a lack of demand. His theory was that the government should actively intervene in the economy to manage the level of demand.
The government could stimulate the economy by running a budget deficit. It could create jobs, decrease interest rates, and encourage spending. When the private sector was spending again, the government could trim its spending and pay off the debts they had accumulated during the slump.
The idea, according to Keynes, was to balance your budget in the medium term, not in the short-run.
One of his best known quotes summarizes this focus on the short-run policies:
“In the long-run we are all dead.”
*born in Vienna, was a great believer in free markets
*Nobel Prize in Economics.
*passionate opponent to Socialism and campaigned to make people aware of the dangers of Socialism.
restricted, even if that led to high unemployment, as it was the only way to control
Monetarists are a group of economists so named because of their preoccupation with money and its effects.
Federal Reserve: Minneapolis
Their view that the main cause of changes in aggregate output and the price level are fluctuations in the money supply. The FEDERAL RESERVE is responsible for monetary policy in the United States. In his view, any attempt to manage the level of demand (as in Keynesian economics) would simply be de-stabilizing and make things worse. The role of government is simply to use its monetary policy to control inflation and supply-side policies to make markets work better and reduce unemployment.
Milton FRIEDMAN (1912- ) is the best known monetarist. He followed the ideas of Hayek. He is one of the select elite in our Virtual economy who has won a Nobel Prize in economics (1976).
Friedman is a great believer in the power of the free market and much of his work has been based on this.
This school of thought, suggested by Milton Friedman, stressing the importance of stable monetary growth to control inflation and stimulate long-term growth is popular among conservatives. The FEDERAL RESERVE SYSTEM conducts monetary policy in the United States.
Federal Reserve: Dallas
Economic freedoms of individuals
The degree of economic freedom in a nation tends to be directly related to the degree of political freedom its citizens enjoy.
Authoritarian nations (Autocracies)
Let’s look at a few closer up:
Examples of goods and services provided by the government
Reasons why government provides public goods and services
Government agencies created to protect consumer safety and against fraud and deception