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r ... . • University of Colorado at Boulder Department of Economics Spring Semester 1981 Mini-Course No. 432 UNEMPLOYMENT AND BUSINESS CYCLES : PRIME CAUSES AND PREVENTIVE MEASURES Eric D. Bovet, Ph.D. Starts Wednesday, January 21, 9:00 - 9:50 , Economics, Room 119 1. Introduction: overview of the course . Definitions of unemployment and business cycles, and other fonns of rrodern economic ills. The concept of economic integration, and econanic efficiency. Pseudo-concepts : Disequilibrium; nonclearing markets; econcmic growth; quantity rationing. The objective function of econanics: efficient consumer service . 2. Unemployment and cycle Theory fran Smith to Keynes : Adam Smith , Malthus, Wicksell, Hawtrey, Hayek, Spiethoff, Pigou, Schumpeter, Wesley Mitchell, Jolm Maynard Keynes. 3. Macroeconomic Theory Since Keynes : National ·Accounts. The Multiplier; the Accelerator; the Quantity Theory. Economic growth . Inventory cycles . Harrod and Hicks. The GNP gap. The output gap. 4. Econanic Stabilization: The stabilization concept. The band. Fiscal measures. The autanatic stabilizers : The program; r,ersonal and corporate income tax. The federal Reserve ratios, rediscount rate , open-market operations . management, and economic stabilization. Direct wage and rationing, and materials allocation. 5. Test: Unemployment and cycle theories of the past. final grade.) 6. The Profit-Motivation Theory of Unemployment and Business Cycles: Assumptions. The Industrial Revolution , and the advent of vertical specialization and anticipatory production and distribution. The price mechanism and its three basic functions . Requisites for , and impediments to, its efficient operation. 7. The Allocation of Profit Margins to Successive Enterprises: The free operation of the price mechanism ensures the equilibrated allocation of profit margins. Impediments cause profit margins to becane distorted . .Distorted profit margins preclude the equation of supply and demand. Static and dynamic S & D equation. The concept of velocities and synchronization. Chronic S & D disparities i.rrpair the efficiency of consumer service . The businessman's dilerrma: Profit maximization Vs . s & D equation. 8. Chronics & D Mismatches , Economic Stagnation, and Unemployment: The corrmercial assembly line. Conflicting S & D velocities, by reducing the volume of consumer goods, waste purchasing power; and by increasing unit costs, generate sales resistance. Hence , an underlying tendency t<:Mard economic stagnation. This is aggravated by amplifying elements into mass unemployment. ideal stabilization unemployment compensation budget. :f'.bnetary policy; The public debt, its price controls; consumer (Counts for one-third of the -29. Chronic S D Mismatches, Ec:x:manic Instability, and Business Cycles: Conflicting could continue indefinitely were inventories infinitely elastic. Inventory constraints convert conflicting speeds into inflationary or deflationary price movements. Hence, an underlying tendency toward econanic instability. This is aggravated by amplifying elements into business cycles. & s & D velocities 10 . Test: The profit-m::>tivation theory of unerrployment and business cycles . for one-third of the final grade . ) (Counts 11. Recapitulation: The law of business zrotivation. Clues toward prevention. The theory provides ~ clues: (a) Prarote vertical integration; or (b) Prarote production and distribution to order. ·Since, however, both would mean a return to the past and are scarcely practical, measures m::>re in keeping with nodem mass production and distribution methods, need to be designed. ~ basic preventive principles . 12. Vertical Integration and Production to Order: Partial vertical integration for certain products or at certain stages. Vertical rnergers. Autanation. Partial production to order for certain products or at certain stages. 13. The Advance Order Service, and Production for Replacement : New opportunity for the consumer to place an order in advance at a saving. Under production for replacernent, simple method, the consuirer no longer has to wait for future delivery . He pays for a unit ordered in replacement of that which he receives. Under the COITifX)und rnethod, this stratagen is repeated at all stages; permitting a nonnal flCM of goods. 14. The Synchronized Pricing Policy, and the Open Price Contract: The synchronized pricing policy consists of selling goods at prices based on replacement costs, and of inereasing the frequency of reorders. The latter is facilitated by the use of the open price contract. It canprises a pennanent-type instrument spelling out general contractual provisions, plus a succession of purchase orders specifying quantities, delivery dates, and prices. 15. Final Test: Preventive measures. (Counts for one-third of the final grade.)