Economics
The Keynesian economic theorists follow an economic model that considers three factors in macroeconomic growth. These are income distribution, savings, and investment functions. These factors are derived from the theory's determination of equilibrium in the economy as determined by the relationship between employment, prices, and gross-domestic-product (Padalkina 18). The theory suggests that the economy does not have full employment, autonomous demand-component affect rate of growth, and investment decisions are not dependent on savings. Therefore, the theory suggests that for the economy to experience growth there must be enough demand to push the economy to full employment (Padalkina 18). In addition, the economy experiences growth when there are increases in demand, increasing returns, externalities, and productivity growth.
The Keynesian economics have advocated that discretionary government measures and interventions are necessary in promoting economic growth, increase standard of living, and employment stability. The theorists believe in the use of government intervention, and the use of social policy development. This is in addition to the use of income maintenance programs improves the management of the economy, thereby leading to economic growth (Padalkina 18). The Keynesian theory believes the financial or market-based systems require government intervention and control to reduce destabilization. To carry out this task the government has to use fiscal and monetary policies to stimulate employment and domestic output to motivate economic growth (Padalkina 18).
2)
The monetary theorists like Modigliani believe that macroeconomic growth is achievable by focusing efforts on the role of financial and money markets. These markets are believed to determine the dynamics of aggregate price level, output level and the role of monetary policy in economic fluctuation stabilization (Free 382). This theory believes that the control of money using monetary policies will determine the exchange rates, assets, and value of the economy aggregates. The monetary theorists suggest that to grow macroeconomics requires the control of the amount of money in circulation through interest rates (Free 382). Interest rates determine the cost of financing holdings and cost of holding money, and increase the value of currency as compared to other currencies. In this manner, these mechanisms determine the demand and supply of services, goods, and assets, including measures of money by financial intermediaries, firms, and households.
Monetary theorists find Keynesian economics incomplete; explain monetary policy by promoting macroeconomic stability. The theorists suggest economic growth achievable through the targeting of monetary aggregates, which is the keeping of money supply growth constant (Free 383). This is to promote long-term economic stability. This money supply in maintained by adjusting nominal interest rates to allow the central bank to influence activity level in the economy (Free 383). In addition, through management of inflationary expectations, to moderate and lower inflation. Monetary theorists also believe in the minimizing of volatility in inflation and output in target levels. The monetary theorist like Taylor believe in minimizing inflation volatility on targeting rule, which are the rules built on output and inflation targets (Free 384). However, monetary theorists like Svensson believe in the minimization nominal interest rates.
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Budget deficits and trade deficits are dependent on each other. Persistent trade deficits like that seen in the U.S. reduces wealth in the hands of citizens and in the economy, causing high shortfalls in government and unemployment programs. The more the government spends on social and unemployment programs, the more financial resources become scarce (Shannon 27). This scarcity leads to a larger budget deficit, as funds are depleted assisting social support systems. Persistent budget deficit creates massive debt as savings are taken away from capital investments of the government. This in turn creates massive debts for countries that make purchases in a nation with a large and persistent budget deficit (Shannon 27). The persistent budget deficit implies that nations seeking to make purchases will not buy products, sell their holdings of accumulated...
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