John Keynes Model Of Government Intervention Essay

John Maynard Keynes, a British economist has had a significant influence upon macroeconomics which includes various governments’ economic policies. Keynes believed that application of fiscal policies could lessen the effect of depressions and recessions. He supported lower taxes and increased government expenditures would trigger demand and drag the economy out of depression. (Stefano 2012) Keynesian economics are economic theories of total spending in one’s economy and its effects on inflation and output.

Classical economics emphasises the fact free markets lead to an efficient outcome and are self-regulating. In macroeconomics, classical economics assumes the long run aggregate supply curve is inelastic; therefore any deviation from full employment will only be temporary. The Classical model stresses the importance of limiting government intervention and striving to keep markets free of potential barriers to their efficient operation. Keynesians argue that the economy can be below full capacity for a considerable time due to imperfect markets. Keynesians place a greater role for expansionary fiscal policy (government intervention) to overcome recession.

All that this condition amounts to, then, is that there must be some discernible regularity in the world, which makes it possible to predict events correctly.” Yellen is doing exactly what Hayek predicted would happen, trying to influence economic factors such as directing interest rates to control the proverbial bubble from popping. Yellen is the epitome of the Keynesian theory, which is to manipulate economic conditions and steer it into a particular direction (i.e.: lowering interest rates and stave-off unemployment). “The founding patriarch was John Maynard Keynes, Yellen’s hero. Keynes was a member of the Bloomsbury group.

In Chapter 1, Rich Nation, Poor nation of The Economics of Macro Issues, the author first identifies the common misconception that economic advantages are predetermined by the natural resources made available to that country. Economic growth is developed by political and legal institutions. Stable institutions are detrimental to the success of the economy because they provide a sense of security for investing. These investments raise capital stock and promote long-term growth which leads to a higher standard of living.

An author from a previous reading that would agree with Friedman, would be Thomas Jefferson. Friedman believed that capitalistic economies are the reason why society is freer than any other time in history. This is similar to Jefferson due to his asking for departure form Great Britain. By leaving Great Britain, the Colonies were not under British rule any longer.

His stance is in opposition to the position of Richard Posner. And as we know, Richard Posner presents his overall disposition more so in the stance of economic liberalism. He has been very clear about his belief that the best economic decision is one in which the total earning capacity of the economy is maximized even when that earning capacity is mainly held by a single individual. Posner would have strongly argued against the ruling, claiming that an increase in overall profits due to the proposed structural changes of Penn Station would provide a longer-term and greater total benefit to the economy (Leiter 1).

. To ensure price stability is maintained the Reserve Bank adjust the OCR which influences prices in the economy. Price stability, which is when the purchasing power of money stays constant, is a desirable outcome of the government because inflation has several negative impacts on household and firms. Inflation erodes the values of households’ savings and causes those on a fixed income to lose purchasing power, the quantity of goods a set amount of money will buy. For firms, inflation causes cost or production to income since workers’ demand pay rises, as well as making it difficult to firms to plan for future.

Neoliberalism can be compared to a laissez-faire approach to economics which favors the privatization of public services and limits government regulation and size. According to Jonathan D. Ostry, the two main roles of a government with a neoliberal agenda are to increase competition through deregulation by opening up domestic markets to international competition and to limit the debt accumulated by the state. In 1970 the economy had become stagnant and inflation was rising, so Ronald Regan, with the help of intellectuals like Milton Friedman, made the case for neoliberalism and convinced the American people that they needed less government interference so that markets could function freely and promote growth (Sparke 456). Neoliberalism and Reaganomics jointly fueled globalization and drove competition which helped flatten the world playing field, as Friedman would

INTRODUCTION Economic growth is defined as the increased capacity of an economy to be able to produce goods and services in comparison from one period of time to another. This is figured by the genuine Gross Domestic Product (GDP) and development, and is measured by utilizing genuine terms such as “Balanced Inflation”. These terms help to remove any distorted views on the perceived outcome of inflation on the cost of merchandises produced. Likewise, Economic growth is related to the high expectations in a person’s standard of living. If the standards are high, it wouldn’t be beneficial for the economy as the working class individuals will face a lot of trouble.

Saad-Filho and Johnston (2005 cited in Thorsen and Lie) believed that neoliberalism has been dominating and shaping the world today. Thorsen and Lie, on the one hand, stated that it is a new paradigm for economic theory and policy-making. Many scholars have stated in their studies that the core foundation of this ideology goes back to Adam Smith and his work “The Wealth of Nations”. In support to this, Clarke (2005) stated in his paper that Smith’s main argument in laying the foundation of neoliberalism was that, “free exchange was a transaction from which both parties necessarily benefited, since nobody would voluntarily engage in an exchange from which they would emerge worse off.”, and added that as market expands which allows increasing

On the other hand, increased profits for firms may be reinvested into expanding output. According to political analyst Thomas Woods, increasing the size of government along Nordic Model lines is not the solution to the recent growth in inequality rates across the OECD. Imposing more government control over the economy, particularly those with large bureaucracies and oppressive laws, will have a detrimental effect on economic growth and cause poverty to increase. Governments should make it much easier for businesses to create jobs by getting rid

During this decade, the Fed pursued a discretionary stop-go monetary policy using a trade-off known as the Phillips Curve, which alternated efforts to decrease high inflation and high unemployment. To target high unemployment, the Fed enacted an expansionary monetary policy, or a go period, by lowering the short-term nominal interest rate called the federal funds rate, to loosen the money supply. The federal funds rate is the interest rate that a bank charges another bank when loaning out their reserve balances in order for the other bank to maintain reserve requirements. The Fed chose to target the federal funds rate because it is very influential in the economy, affecting monetary and financial conditions. After inflation mounted during the go period, the Fed would enact a contractionary monetary policy, or a stop period, by raising interest rates to tighten the money

Governments often disagree on the adjustment of local, state, and national economic policies. Measures implemented by these governments in relation to the collection of revenue and public expenditure are referred to as fiscal policies.  Fiscal policy is the use of government revenue collection, which is derived from income tax and expenditure, to impact the fluctuating economy. Some may opt to promote expansionary fiscal policy, while certain show more interest in contractionary fiscal policy. While there are many advantages to both, certain key factors set them apart from each other.