Transcript Economic Schools Classical

Economic Schools
Classical
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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
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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?
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Role of government is to insure competition
by regulating markets:
Antitrust laws
OSHA
Securities and Exchange Commission
Food and Drug Administration
Keynesian school
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J. M. Keynes (1930’s)
Neo-Keynesians
Fiscal policy
Slogan: Competition is flawed
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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
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Competition is good, but slightly flawed
Role of government-policies correct the flaws
Monetary policies
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1970’s to today
Includes Bernanke and former Chairmans of
the Federal Reserve: Volcker and Greenspan
Federal Reserve
Slogan: Fine tuning is needed
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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