If that point wasn’t already clear, the strongest argument that is pro-raising minimum wage is that, someone who gets paid more money, in turn, has more money. In other words, people who think the minimum wage should be raised, would argue that raising minimum wage would decrease poverty. While this argument certainly makes sense when it isn’t thought about too much, it is an argument that is very easily disproved. The first way this argument is disproven, is when inflation is taken into account. Inflation occurs when the buying power of a dollar decreases.
In this paper, I will be addressing the different types of macroeconomics, with a focus on the classical and the Keynesian models and the differences that exist between them. I will finish the essay with the new economics models that came after the two early mentioned ones, mainly from the 80's. Before going to the differences, a brief history of the macroeconomics would help understand what each model emphasizes. The classical model is the oldest model and has its origin since centuries. Probably one of the major contributors to the classical economics is the economist David Ricardo followed by J-B Say among others.
In Keynes, the immediate result is a reduction in employment, in the classical, it is an increase in the amount of work done and a reduction in prices. Both models seem to be correct depending on the time scale. The immediate effect does seem to be layoffs, but the long run effect is that work increases and prices fall. Because of the different opinions about the shape of the aggregate supply and the role of aggregate demand in influencing economic growth, there are different views about the cause of unemployment. Classical economists argue that unemployment is caused by supply side factors – real wage unemployment, frictional unemployment and structural factors.
However, in the long run these will have an effect on unemployment that will rise up and getting even worse. Moreover, most people are unlikely to be happy to accept higher taxes as it reduces disposable income and the level of consumption. A reduction of government spending may result in less people will support the government. Demand side policies will bring down the price level (reduce inflation), but they will result in lower national output and rise in unemployment. Therefore, government could use supply side policies to deal with the unemployment situation such as in interventionist supply-side policies will increase the levels of human capital of an economy by support education and training institutions with subsidies or tax benefits and for market-based supply-side policies will reduce trade union power.
In ' 'The Twilight of the Old Consensus, ' ' Gordon provides a trace of the fiscal policy after the end of World War 1 and how it led to the shock experienced during the Great depression. Finally, in ' 'Keynesianism and the Madison Effect, ' ' Gordon argues that after the end of World War 2, economists relied on Keynesian deficit-spending theory to dictate fiscal and monetary policy. These chapters have been used to sum up the
Therefore, in the long run, increases in money supply lead to inflationary phenomena. The doctrine of money supply rule promoted by Friedman as a counter measure to inflation and short run employment fluctuations. The \textbf{money supply rule} is a monetary policy rule proposal according to which central banks should increase money supply at the same rate as income grows, in order to eliminate inflation. The inspiration of the rule comes from the Friedman’s version of the quantity theory. This version of quantity theory is stated in percentage changes terms, i.e.
When high prices persist, wages will eventually adapt to the new price level, which contracts production and thus employment. This brings the unemployment level back
He was born on the 4th of July 1910 and died 23rd February 2003, aged 92. He developed theories on deviance, the concepts of self-fulfilling prophecy, role model and manifest function. Merton studied sociology in Harvard University and earned his doctorate degree in 1936. He then taught in Harvard for a further two years. He started in Columbia University in 1941 where after more than 30 years he became the University’s highest rank, University Professor in 1974.
Classical or real-wage unemployment occurs when real wages for a job are set above the market-clearing level, causing the number of job-seekers to exceed the number of vacancies. Many economists have argued that unemployment increases with increased governmental regulation. For example, minimum wage laws raise the cost of some low-skill laborers above market equilibrium, resulting in increased unemployment as people who wish to work at the going rate cannot (as the new and higher enforced wage is now greater than the value of their labor). Laws restricting layoffs may make businesses less likely to hire in the first place, as hiring becomes more risky. However, this argument overly simplifies the relationship between wage rates and unemployment,
A high inflation will depreciate the domestic currency and an increase in inflation will increase the demand for foreign goods. It also decrease export, leading to balance of payment deficit. Hence, exchange rate on the foreign base countries currency will rise which appreciate the home base currency, (Madura, 2008). He also explained the relationship using the purchasing power parity. The theory of PPP states that a basket of a good in one country should have the same cost in another country, taking into account exchange