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