Professional Documents
Culture Documents
Outline
Keynesian Theories
Money Illusion/Animal spirits
Keynes on Says Law
Liquidity Trap
Non-keynesian
Austrian economics
Austrian Business Cycle Theory
Classical
Classical vs. Keynes
Monetarism
Quantity Theory of Money
Inflation and Side Effects
Government Spending
Animal spirits:
A spontaneous urge to action rather than inaction*
dead.**
Confidence
*Keynes, The General Theory of Employment, Interest, and Money
**Keynes, A Tract on Monetary Reform
Recession
Liquidity Trap
lend
Flat LM curve
Impotent monetary policy
Confidence
Keynesian Econ
If
Money illusion
Glut of unemployment
Low interest rates
Deflation
Low consumer and business confidence
Hoarding/Liquidity Trap
Dearth of investment
Then
Increase national income by shifting IS curve,
increasing AD
Govt. should spend, spend, SPEND!
A.B.C. Theory
A.B.C. Theory
goods
Capital is heterogeneous
A.B.C. Theory
Gold Standard
Money supply shouldnt increase,
even if the population or supply of
goods increases
Deflation problems
Government sanctioned M
counterfeiting
Classical Economics
Classical
vs.
Keynes
Why Keynes is wrong if people are rational, self-interested and
utility maximizing.
Money illusion/stickiness
Example: Deflation
Workers resist nominal wages
Businesses have 2 options:
Raise prices cost-push inflation
Lay off wokers
Workers seek new jobs
Businesses offer wages that reflect workers real worth (if
no minimum wage laws, labor unions, etc.)
Keynes refutation of
Says Law
general glut
Hoarding: why?
Puzzling Paradox
Monetarist Economics
Stimulus
In a liquidity trap:
Even if the Fed increases M, banks hesitate
Government Spending
Printing money
Implicit tax on holders of dollar denominated
assets
No legislation involved
Review
Keynesian Theories
Money Illusion/Animal spirits
Keynes on Says Law
Liquidity Trap
Non-keynesian
Austrian economics
Austrian Business Cycle Theory
Classical
Classical vs. Keynes
Monetarism
Quantity Theory of Money
Inflation and Side Effects
Government Spending
Questions?
References
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