Transcript Keynesianism

Keynesianism v Monetarism
MK, Unit 23
Reading p. 117
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Read the text and underline the main ideas
connected with classical economic theory,
Keynesianism, and Monetarism.
Explain: “constant, non-inflationary growth in
the money supply.”
Keynesianist governmental intervention will
“make the next swing in the business cycle
even greater.”
What was the dominant regulatory trend
concering banking in the beginning of the 21st
century?
Keyenesianism v. Monetarism
replace the underlined with 1 term
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Keynes advocated government intervention in the
economy and the use of (policies on public
spending and taxation) and (policies on money
supply and interest rates) to diminish the effects of
(downturns longer than 6 months) and periods of
high employment.
Argued against the traditional view that free markets
would automatically provide (employment of around
96%-100% of the working age population) as long
as workers reduced their wage demands.
Monetarists argued that Keynesian policies lead to
(rising prices and decreasing purchasing power).
Keyenesianism v. Monetarism
explain the parts in italics
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Advocated government intervention in the
economy and the use of fiscal and monetary
measures to diminish the effects of
recessions and periods of high employment.
Argued against the traditional view that free
markets would automatically provide full
employment as long as workers reduced their
wage demands.
Monetarists argued that Keynesian policies
lead to inflation.
Task
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MK, p. 118/ Comprehension
Fill in the gaps
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In the long run, excess savings cause interest rates to
___ and investment to ___ again. – classical economic t.
The ___ is self-regulating. –classical economic t.
___ intervention in the economy is necessary to ___ the
business cycle. – Keynesianism
Market forces could produce a durable equlibrium with
___ unemployment, ___ goods, ___ rates of income and
investment. – Keynesianism
Governments shouldn’t ___ with the economy. Their only
job should be to ___ a constant non-inflationary ___ in
the money supply. - Monetarism
___ the money supply will only lead to inflation. Monetarism
Fill in the gaps
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In the long run, excess savings cause interest rates to
fall and investment to increase again. – classical
economic theory
The economy is self-regulating. –classical economic t.
Governmental intervention in the economy is necessary
to counteract the business cycle. – Keynesianism
Market forces could produce a durable equlibrium with
high unemployment, fewer goods, reduced rates of
income and investment. – Keynesianism
Governments shouldn’t interfere with the economy. Their
only job should be to ensure a constant non-inflationary
growth in the money supply. - Monetarism
Increasing the money supply will only lead to inflation. Monetarism
The subprime ciris and the
credit crunch
MK, Unit 14
Think about these questions while watching the video
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What is a mortgage?
Why do institutional investors buy Treasury Bills?
Why did the Chairman of the Fed decrease the
interest rate to 1%? What was the result?
Why was there an abundance of credit in the early
21st century.
What is a down payment?
Why was it good to buy a house on mortgage?
Why do risky investments get a higher rate of return?
Why didn’t lenders mind that some homeowners
defaulted on their mortgages?
Prime mortgage v. sub-prime mortgage?
How did mass home foreclosures affect housing
prices? And homeowners still paying their mortgage?
Video – Watch this at home too!!!
http://www.crisisofcredit.com/
What are these? Find the corresponding term in
the reading. (MK, p. 75)
People who are unlikely to repay their loan.
– subprime borrowers /people with a high risk of
default
 A security, that an investor would buy because
(s)he wants to get a regular income from people
who are paying off the mortgage on their houses.
– MBS and CDO
 When I bought my house, it was worth $300.000,
house prices fell, it is now worth $90.000!
– the debt is greater than the value of the house
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Find definitions for these terms
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Subprime borrowers
Securitization
Credit crunch
Default
Mortgage
Collateral
To write off a bad debt
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When banks realize that a debt will never be
repaid and stop trying to collect it