Econ 201 Chapter 1-6 Notes

During the Great Depression Unemployment reached

25%

Land labor capital

3 principal factors of production

Net investment vs gross investment

A net investment is the amount spent by a company or an economy on capital assets, or gross investment, less depreciation. Net investment helps give a sense of how much money a company is spending on capital items (such as property, plants and equipment), which are used for operations.

Lack of effective demand

According to Keynesian economists, the problem of the great depression was what?

Bank panic

Banks are unable to repay all depositors who want to withdraw their money

Shocked economists

Classical economics were shocked by the extended unemployment of the Great Depression and Great Recession

external shocks

Classical economists argue recessions are caused by

Economy will restore itself to equilibrium

Classical economists predict that after an external shock the economy will

Neoclassical Economics

Conservative Classical Orthodox Utility theory of value Laissez-faire: Say, Senior Reform School: Neoclassical Keynesian Synthesis Consensus Social theory Neoclassical or Neoliberal

Three national goals of macroeconomics policy from employment act of 1946

Economic growth, full employment, price stability

Capitalism

Economic system in which private individuals own all of the assets of a business, while another group of people are hired to do all of the labor; Solution to production and distribution Property rights and ownership of means of production, commodity production and exchange, creation of working class, economic view of human nature

Consensus Social Theory

Economic view of human nature Benign view of social stratification and inequality; presumed solution to the problem of distribution

Net exports

Exports- Imports

Fiscal vs Monetary policy

Fiscal policy is a balanced budget or how the government spends money. Monetary policy is the role of the federal reserve in controlling the value of money

National Product Accounting Identity

GDP = C + I + G + (x-M)

Unemployment compensation

Give an example of a government transfer payment

Money spent by households for food and clothing

Give an example of consumption spending

the business cycle

Historical pattern of instability in capitalist economies

Keynesian flow of money, goods and services

Households and businesses contribute to product and labor market Leakages with unused savings, unwanted inventories, underutilized capacity, unemployed people

Circular Flow

Illustrates the fundamental macroeconomic concept that household income is equal to the total value of all goods and services produced by businesses

Will be used for investment

In the Classical view, any income not used for consumption

Interest rate will fall

In the classical view of the macroeconomy if there is not enough investment spending to use all savings

Inversely related

In the classical view of the macroeconomy, supply of savings and interest rate are

Falling wages

In the classical view of the macroeconomy, too many workers seeking work or unemployment will lead to

Policy science

Inform economic and social policy debates in public, private, and non-profit sectors

3 Macroeconomic Markets

Investment and saving (loanable funds market), Labor supply and demand, aggregate supply and demand

Difference between consumer and investment spending

Investment is money put into areas where it's expected to increase in value. For example, buying a house would count as an investment rather than consumption because houses are expected to rise in value over time. Consumption, on the other hand, is merely purchase of goods and services that are likely to depreciate or are expendable. Buying a computer or buying food would be examples of consumption.

Increases in inventories that result from an unexpected decline in sales

Keynes analysis says that unintended inventories are

Role of government from Keynes

Keynesians: increase spending to make up for deficiency of aggregate demand

Classical view: external shocks

Macro economy is always self-adjusting to full employment, except for external shocks

Invisible hand

Market clearing equilibrium of output and prices, optimal allocation of resources, max social welfare, distributional justice

The Wealth of Nations by Adam Smith

Most important work of classical political economy

John Maynard Keynes

Most prominent economist of 20th century

Wages, salaries, rent, interest, profits

National income includes

The Great Divide int he social sciences: Classical Political Economy

Neoclassical "Orthodox" Economics vs Heterodox Economics

National Income and Product Accounts (NIPA) 1935

New national accounting system

National Income Accounting Identity

Output = Income

Effective Demand

Possession of both desire and means to purchase goods or services

Heterodox Economics

Progressive Activist Market regulation Labor theory of vlaue: Marx Marx, Veblen, Post- Keynesian Critical Social theory

Aggregate demand is insufficient to purchase aggregate supply

Progressives argue that recessions occur when

Nominal vs Real GDP

Real values are adjusted for changes in price level over time (inflation/deflation) and nominal values are not adjusted

Circular flow of money, goods and services

Resource market, households, product market, businesses

Critical Social Theory

Sociological view of human nature Social stratification: systematically unequal distribution of wealth and status by race class and gender

Activist policies

Stabilization policies

Macroeconomics

Study of economics at the aggregate (national and global) level of analysis; economic growth, unemployment, inflation, economic welfare, income distribution, fiscal policy

Microeconomics

Study of economics at the individual level: households and firms or behavior of individual industries

Say's law

Supply creates its own demand

Equilibrium

The point at which the quantity supplied by producers equals the quantity demanded by consumer

Great Divide

Two competing schools of thought created the great divide in the social sciences

Consensus and Critical Theory

Two competing social science perspectives

Problem of distribution

Two competing social science perspectives argue over this problem

Role of government in a Keynesian View

Unemployment insurance and welfare-automatic stabilizers, activist fiscal stabilization policy

Great Depression 1929-1940

Was during the 1930's and lasted for 10 years Reduced output over 10 years of insufficient growth

Leakages

Ways in which elements of outcome or input are withdrawn from or escape the circular flow

Feudalism

What economic organization preceded capitalism?

Government transfer payment

When government pays money to individuals that is not a payment for a good or service

Fallacy of composition

When one infers that something is true of the whole from the fact that is true of some part of the whole

The wealthy

Who is higher average propensities to save?

Intermediate goods

inputs into the production of final goods that are not counted as part of the GDP

Austerity policies

laissez-faire- small stable growth rate

Social stratification

systematically unequal distribution of wealth, power, and status by race, gender and class