Keynesian Theory
Neoclassical economists are naturally more reluctant than Keynesians to concede that capitalism as a system might be dysfunctional or that markets might be irrational and inefficient, leading to cycles of boom and bust, mass poverty and unemployment, which happened in the 1930s and is happening again today. One of the main assumptions in the classical model is 'full employed equilibrium' or in other words 'absence of involuntary unemployment.' The classical model assumes that supply of labor and real wage are positively related. Assuming that the wages are flexible, the aggregate supply curve is vertical because a change in the price level does not affect the output. Equilibrium occurs when aggregate demand and aggregate supply intersect. In the absence of regulations, the labor market is always in equilibrium, thus the intersection point determines the real wage, and equilibrium demand and supply. Since the demand and supply are equal in the…...

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WORKS CITED

Clarke, P. Keynes: The Rise, Fall and Return of the 20th Century's Most Influential Economist. Bloomsbury Press, 2009.

Crutsinger, Martin and Stephen Manning. "Productivity Gains May Be Bad News for Job Seekers." AP Business Writers, Nov 5, 2009.

Krugman, Paul. "We're Still in a Paradox of Thrift World" New York Times blog post August 26, 2010, 9:38 AM

Mankiw, N.G. Principles of Economics. South-Western College Publishers, 2010.

This means that the impact will be the result of natural attrition. So the theoretical firm's wages are resent every once in a while. Productivity will not respond right away to wage changes, but will happen as the natural course of turnover occurs.
There are several policy implications for the New Keynesian school. One is that government intervention is required. hile new classical economists view recessions as a natural component of the business cycle, New Keynesians believe recessions to be the result of market failure. Thus, intervention is required in order to correct the failure and put the economy back on course.

The Economic Crisis

The New Keynesian school would view the current economic crisis as a market failure. The failure would likely be identified as the real estate bubble, which can be attributed to a number of externalities. The Fed reduced rates sharply to stimulate growth in the wake of the…...

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Works Cited:

John Maynard Keynes biography retrieved May 4, 2009 from http://homepage.newschool.edu/het//profiles/keynes.htm

Becker, Jo; Stolberg, Sheryl Gay & Labaton, Stephen. (2008). White House Philosophy Stocked Mortgage Bonfire. New York Times. Retrieved May 4, 2009 from  http://www.nytimes.com/2008/12/21/business/21admin.html?_r=1&pagewanted=all 

Blinder, Alan S. (2008). Keynesian Economics. The Concise Encyclopedia of Economics. Retrieved May 4, 2009 from  http://www.econlib.org/library/Enc/KeynesianEconomics.html 

Trumbull, Mark. (2009). Silver lining of shrinking economy: consumer spending up. Christian Science Monitor. Retrieved May 4, 2009 from  http://features.csmonitor.com/economyrebuild/2009/04/29/silver-lining-of-shrinking-economy-consumer-spending-up/

Keynesian theory
Turning to Keynes economic theory, we find an economist known as John Maynard Keynes who is Irish as the main man behind this theory. This theory brings on board the foundation of less than chock-a-block employment as well as the government factor which comes in handy with guiding principles to even out the financial system at symmetry at or in close proximity to chock-a-block employment by means of up to standard anticipated inflation. To impede Classical economists from locking in on the subject of the long run, he come up with this quote "Long run is a misleading guide to current affairs. In the long run we are all dead." One of the issues that this theory has brought out clearly is the important role of government in steadying out financial sequence wallops, among the items it stressed on are; tax breaks, government expenditure as well as hikes…...

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Work Cited

Gordon, Robert J. (1990) "What Is New-Keynesian Economics?" Journal of Economic Literature 28, no. 3: 1115 -- 1171.

Keynes, John Maynard. (1936) The General Theory of Employment, Interest, and Money. London: Macmillan.

There are many potential actions that could have been taken to help prevent the closing of GM and the job losses, plant closings, and economic catastrophe that is likely to occur as the once unstoppable giant collapses (Wolff, 2009).
The UAW won above subsistence level wages for GM employees, which should have theoretically had the same effect as an economic stimulus in the traditional Keynesian sense. However, rather than being rewarded with increased demand, GM workers found themselves displaced when the company decided to move production to countries where the workers did not attempt to cut into company profits by demanding fair wages. The company profited and these changes had little affect on demand. The world still demanded GM cars, regardless of where they were produced.

The impact of displaced workers should have created the affect of decreased demand according to both Keynesian and Marxian economics. However, when one takes a…...

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References

Arestis, P. & Karakitsos, E. (2008). The U.S. housing slump and the consumer. Journal of Post

Keynesian Economics. 30 (30, 335-352.

Binder, A. (2002). The Concise Encyclopedia of Economics. Economics Library. Retrieved June

18, 2009 from  http://www.econlib.org/library/Enc/KeynesianEconomics.html .

Keynesian evolution: Analysis and Criticism believe myself to be writing a book on economic theory which will largely revolutionize -- not, I suppose, at once, but in the course of the next ten years -- the way the world thinks about economic problems"
John Maynard (Keynes, Letter to G.B. Shaw, January 1, 1935)

Prior to the Keynesian evolution, may economists and politicians viewed economics from a "micro" perspective. They saw factors such as unemployment, interest rates, profit and loss as related to individual organizations and the impact of individual transactions. In modern times, the idea of macroeconomics is much more widespread, and the impact of economic endeavors is viewed as part of an economic whole, or national/global approach. Part of the credit for this much more diverse and broad view is due to the efforts of John Maynard Keynes, through his publications and the "Keynesian evolution."

Though Keynes is often criticized for his…...

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References

Briggs, A. (ed.) (1962) Fabian Essays, Allen & Unwin, London Cairncross, A. (1978) 'Keynes and Planning, in Thirwall, A.P. (ed.), Keynes and Laissez-Faire, Macmillan, London

Galbraith, John Kenneth. "The Joys of Recession," (Winter, 1994): 8-9, March 15, 2003,  http://epn.org/prospect/16/16galb.html 

Keynes, M. (ed.) (1975) Essays on John Maynard Keynes, Cambridge University Press, Cambridge

John Maynard

Keynesian Aggregate Expenditure Model
Two Quotations:

Company profits grew strongly in the June quarter putting another question mark over the extent of the predicted economic slowdown..."

However the central bank acknowledged that the weaker data for capital spending intentions are at this point the only clear evidence of an impending slowdown"

These two quotations regarding the same economic scenario seem to pose the question to consumers and economists alike -- why a predicted economic slowdown, if company profits are growing strongly? hy place so much fear in the data regarding capital spending intentions on the part of consumers? hy turn to the tools macroeconomics has long focused on, that of monetary policy, which the central bank controls, and fiscal policy, which the federal government controls, to shift the current state of economic equilibrium, as described above? (Schenk, 1997, "Synthesis")

The answer lies in the Keynesian aggregate expenditure model. This model is the generic term…...

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Works Cited

Keynesian Aggregate Expenditure Model." (2004) Amos Web. Retrieved on June 20, 2004 at http://www.amosweb.com/cgi-bin/gls.pl?fcd=dsp&key=Keynesian+aggregate+expenditure+model

Macroeconomic Equilibrium. (2004). Retrieved on June 20, 2004 at http://nova.umuc.edu/~black/meq00.html

Scheck, Robert. (1997) "Activism." Retrieved on June 20, 2004 at http://ingrimayne.saintjoe.edu/econ/Keynes/Activism.html

Scheck, Robert. (1997) "Synthesis." Retrieved on June 20, 2004 at http://ingrimayne.saintjoe.edu/econ/optional/ISLM/Overview14ma.html

Economics: Neoclassical, Keynesian, And Marxian Theories
Social theories attempt to explain how people interact with each other, and with their surroundings. For this reason, it is believed that social theories shape society, so much so that people will theorize elements in their surroundings based on their life situations and what they experience in their interactions. Towards this end, what one person thinks or believes about a certain aspect may not necessarily be what another person thinks; people hold different theories about how the economy works, and how it influences human interactions - and this is particularly why we have multiple economic theories today. Social theories are broadly categorized into three -- humanism, structuralism, and dialectics. These three have been applied to economic theory to explain how the various elements of the economy interact to realize maximum outcomes. This text demonstrates how the aforementioned social theories have been used to shape the…...

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References

Hackett, Steven. Environmental and Natural Resources Economics: Theory, Policy, and the Sustainable Society (2nd ed.). Armonk, NY: ME Sharpe, 2012. Print

Wolff, Richard and Resnick Stephen. Contending Economic Theories: Neoclassical, Keynesian, and Marxian. Cambridge, MA: MIT Press, 2012. Print

Wolff, Richard. "The New Reading of Karl Marx's Capital in the United States." Professor Wolff's Social Movement Project, 2007. Web. 3 March 2015  http://www.rdwolff.com/content/new-reading-karl-marx%E2%80%99s-capital-united-states

he intersection determines the amount of investment in education / productivity factors by all individuals and institutions.
he major criticisms to the Neoclassical model come from the assumption competition holds, namely that individuals act to maximize profit in all scenarios; factor mobility is unlimited; marginal returns to labor don't increase with wage rates, and other simplifications which rarely hold true in the workforce. Nor are all workers the same to the firm (discrimination), and workers' productivity and labor supply decisions change at different wage levels. hen we have to consider frictional unemployment; information asymmetry; product substitution; any number of real constraints that complicate the pure "Marginal Demand for Labor" theory (Kaufman & Hotchkiss, 2000, p. 31).

he main counter to the Neoclassicals arose in the early-mid-20th century Institutional school after Veblen, Commons and Mitchell, ironically at the University of Wisconsin 1920-30. Institutionalist focus on real evidence counters the Neoclassical theory where…...

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The main counter to the Neoclassicals arose in the early-mid-20th century Institutional school after Veblen, Commons and Mitchell, ironically at the University of Wisconsin 1920-30. Institutionalist focus on real evidence counters the Neoclassical theory where institution effects went ignored (New School n.d.). The more sociological approach recognizes 'market failures' of discrimination, collective bargaining and incorporation. Evidence surrounds us today in the form of monopolistic energy provision, embedded in every price on every shelf including wages, for example. One criticism on an Institutional line would be the persistence of poverty. If poverty is unwanted, either we allow poverty to persist, it is necessary for Neoclassical models to hold, or the model is flawed. The Institutional thread leads eventually via the London School to the modern "Post-Keynesian," "Behavioral," "Environmental," and other heterodox schools.

Comparing share of population to share of workforce for groups with a particular characteristic reveals discrimination if a group is underrepresented in a firm or industry. or, we identify where a category is overrepresented in the total labor market relative to other workers. If productivity is the same between groups, lower wages must be explained somehow. The heterodox perspective recognizes potential effects within the market, and before workers apply for a job. Some workers are less competitive than others before they apply, education being a common reason, which depends on access outside the workplace. Market discrimination enters the realm of individual aversion to classes of workers by the employer or other workers, usually over ethnicity, religion or gender, but any reason can provide empirical evidence if wage differentials persist.

Prejudice is real, and it results in lower wages for minorities (Kaufman & Hotchkiss 2000, p. 469). In the aggregate, equally

Romer explicitly and directly ties the changes that have been made to the model to the historical shifts in the world's (and the United State's) economy; by noting that inflation was simply not a major issue for the first decades of the models' use and existence, the model's efficiency and accuracy during that period are easily explained. Just so are the inefficiencies of the model in a world where inflation is a major factor in the global economy (as well as in the economies of many independent nations), which the inclusion of aggregate supply (AS) into most contemporary uses of the model addresses. This also creates complications in the model that are not necessarily warranted by the increased accuracies that they provide, and it is for this reason that Romer advocates another major change to the model before it is put to further use.
It is at his juncture that…...

Therefore, this model is focusing on how an increase in labor productivity will lead to involuntary unemployment. The below chart is highlighting how this is occurring. (Fazzari)
The Radical Keynesian model thinks that output increases from higher levels of productivity. This is because demand is constrained and firms have to see an improvement in sales. However, they do not think that falling prices will restore full demand. This is because these declines will help them believe that prices will fall even further in the future (which restrains spending). This causes bankruptcies to increase and it is eroding the wealth of borrowers. These issues are forcing aggregate demand to remain the same instead of shifting outward. (Fazzari)

Since wages and prices are flat, they do not help to improve unemployment or output. This is from aggregate demand remaining the sluggish (which is making wages and price adjustments stagnant). In the future, this…...

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Works Cited

Fazzari, Steven. "A Penny Saved May Not Be a Penny Earned." Post Keynesian Workshop. Kansas City, KS. Jun. 2004.

Fazzari, Steven. "Aggregate Demand and Firm Behavior." Journal of Post Keynesian Economics 20.4 (1998): 527 -- 560. Print.

To increase effective demand, Keynesians believe the government must balance the economy with deficit and increase expenditure. However, the constant alternation between booms and recession is causing the booms to get shorter while the recessions become longer. This phenomenon is the result of empirical evidence that indicates that in the end, the interest rates decrease.
However, this situation creates a problem of capitalism as the rich increase their wealth while financial deficit worsens. Minsky adopted the perspective of Keynesians, hypothesized financial instability, as the finance and money that connects the present with the future, but the future is uncertain. Minsky finds the problem of financial stability is in financing. However, financial instability increases under contemporary capitalism, which increases economic crisis. This leads to the conclusion that to solve economic crisis, there is a need to reduce financing and take up investments in real economy.

This is in contrast to the Keynesian…...

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Works Cited

Cynamon, B.Z. And S.M. Fazzari (2008) "Household Debt in the Consumer Age: Source of Growth- Risk of Collapse," Capitalism and Society, Revised Chapter 6.

Cynamon, B.Z. And S.M. Fazzari and Setterfield, M "Understanding the Great Recession" CFS Chapter 1.

Fazzari, S.M. "The Legacy of Hyman Minsky and the Great Recession" Video Lecture, Washington University in St. Louis

Setterfiled, M. (2010) "Wages, Demand, and U.S. Macroeconomic Travails: Diagnosis and Prognosis," CFS Book.

The increases in the deficit; are a normal effect and will equalize itself out through an improvement in the total amounts of taxes that are collected. (Schiller, 2010)
For me, these insights are providing greater clarity about what actions must be taken to avert recessions. It is also illustrating how the headlines in the news media about government policies may not be completely accurate (i.e. The problems with the national debt). Instead, this is illustrating how these changes are a necessary outcome. That will help to stabilize the economy and prevent recessions from becoming worse. This is the key for avoiding downward spirals in economic activity and the negative long-term effects it will have on everyone's standard of living. (Schiller, 2010)

What has been happening to consumer confidence over the last six months? What explanation for consumer confidence does the memo give?

In the last six months, consumer confidence has remained volatile.…...

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References

The Conference Board's Consumer Confidence Index. (2013). Conference Board. Retrieved from:  http://www.conference-board.org/data/consumerconfidence.cfm 

The Conference Board Economic Forecast. (2013). Conference Board. Retrieved from:  http://www.conference-board.org/pdf_free/economics/2013_05_151.pdf 

United States Consumer Confidence. (2013). Trading Economics. Retrieved from: http://www.tradingeconomics.com/united-states/consumer-confidence

Schiller, B. (2010). Essentials of Economics. New York, NY: McGraw-Hill / Irwin.

Private Sector Investment and Economic Development
Investment and economic development

The ole of Private Sector investment in Economic Development

In the past few decades there has been overwhelming support for growth and development rooted in private investments and market-oriented strategies. A move from public sector driven growth has come as result of the need to reduce the widening gap in the balance of payment account, increasing public debt, rising inflation rate, growing foreign debt fundamentally falling living standards. There has been a shift from the need for large public corporations undertaking productive activities in an economy owing to the realized inefficiency in resource allocation. Corruption and misappropriation of public funds is observable owing to the lacking need to optimally reap benefit from the investment. Unlike in the public sector, private sector investment guarantees optimal productive activities, efficient allocation of productive resource, technological advancements to reduce cost and increase productivity (Dao, 2008).

Preferences for private…...

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References

DAO, M.Q. 2008. The Impact of Investment Climate Indicators on Gross Capital Formation in Developing Countries. The Journal of Developing Areas, 42, 155-163.

GROSSMAN, G.M. & HELPMAN, E. 1994. Endogenous innovation in the theory of growth. Journal of Economic Perspectives, 8, 23-44.

HARRISON JR., W., HORNGREN, C.T. & WILLIAM, C.T. 2012. Financial accounting 9th edition., U.S.A., Prentice Hall

JORGENSON, D. 1971. Econometric Studies of Investment Behavior: A Survey. Journal of Economic Literature, 9, 1111.

Fiscal and Monetary Issues in America
Economics

There are high tensions in the American economy today resulting from speculations whether the government will be able to hit the debt ceiling. Failure to hit the debt ceiling has serious economic effects to many sectors of the economy both in the United States and various countries of the world. Political disagreements regarding the budget delay decision-making process as the date ceiling draws closer each day. The government debt will cause disruption and failures in the U.S. market system and beyond because some rates will double while others will completely fall. The consequences of these are both the government and private sector failures and the economy will not be in a position to sustain itself. Government securities will lose market value and the cost of bonds will double because of the risk premiums. The result of this is government deficits, which will require borrowing.

Application…...

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References

Eichner, A.S., & Kregel, J.A. (1975). An essay on post-Keynesian theory: a new paradigm in economics. Journal of Economic Literature, 13 (4), 1293-1314.

Moseley, F. (1995). Heterodox Economic Theories: True or False?. Brookfield: Edward Edger

Publishing

Lee, F & Bekken, J. (2009). Radical Economics and Labor. New York: Routledge Publishing.

U.S. Economy
Evaluating the current state of the United States economy

Although many are of the opinion that the recession that the globe was forced into in 2008 is finally uplifting and signs of economic revival can be witnessed. The resulting high levels of debt and unemployment from the recession had dragged many countries, especially the United States in to a state of economic turmoil. In order to reverse the effect of such factors, the United States government has implemented strategic monetary and fiscal policies. These policies attempt to rejuvenate the economic position of the country by not only controlling the supply and demand via tax cuts but also through re-setting the interest rate level in accordance to the low level of disposable income available to the unemployed / lowly employed citizens of the United States can acquire loans to allow easy spending and repayment of the loan as well.

Introduction

During the…...

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Bibliography

CBO. (2012). Report: Estimated Impact of the American Recovery and Reinvestment Act on Employment and Economic Output from October 2011 Through December 2011. Washington D.C.: Congressional Budget Office.

FED. (2013, June). FED Federal Funds Rate, American central bank's interest rate. Retrieved from Global-rates.com:  http://www.global-rates.com/interest-rates/central-banks/central-bank-america/fed-interest-rate.aspx 

Labor, U.D. (2013, June). Databases, Tables & Calculators by Subject. Retrieved from Bureau of Labor Statistics:  http://data.bls.gov/pdq/SurveyOutputServlet 

Samuel, H. (2013, April 2). France says 75 per cent tax will apply to footballers. Retrieved from The Telegraph:  http://www.telegraph.co.uk/news/worldnews/europe/france/9966692/France-says-75-per-cent-tax-will-apply-to-footballers.html