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Economic Schools Classical Neo-classical and supply-siders including: Adam Smith (1776) “The Wealth of Nations…” David Ricardo-comparative advantage Alfred Marshall-supply and demand Slogan: Competition is good The invisible hand Say’s law -supply creates its own demand and in the long run, markets will create full employment Neo-classical –trickle down theory will help the wealthy first, but will benefit all. Reagonomics in the 1980’s-lowered tax rates of the wealthy -- Why? Role of government is to insure competition by regulating markets: Antitrust laws OSHA Securities and Exchange Commission Food and Drug Administration Keynesian school J. M. Keynes (1930’s) Neo-Keynesians Fiscal policy Slogan: Competition is flawed AD is the key (not AS) Leaks cause constant recessions Savings cause recession Sticky wages block Say’s law (supply creates its own demand) Expansionary and contractionary policies Add stabilizers Keynes –In famous quote: the long run--- …..We are all dead Competition is good, but slightly flawed Role of government-policies correct the flaws Monetary policies 1970’s to today Includes Bernanke and former Chairmans of the Federal Reserve: Volcker and Greenspan Federal Reserve Slogan: Fine tuning is needed Congress can’t time the policy options Voters won’t allow contractionary options Use interest rate changes of the Federal Funds rate and the discount rate Use bonds through the FOMC Change required reserves if needed Easy and tight money policies