An analysis of two controversial economic policies keynesian and supply side economics

Supply-side economics developed in response to the stagflation of the s. Their claim was that each man had a right to himself and his property and therefore taxation was immoral and of questionable legal grounding.

An analysis of two controversial economic policies keynesian and supply side economics

The Beginning: The Stock Market Crash

Money One of the principal subfields of contemporary economics concerns money, which should not be surprising since one of the oldest, most widely accepted functions of government is control over this basic medium of exchange. The dramatic effects of changes in the quantity of money on the level of prices and the volume of economic activity were recognized and thoroughly analyzed in the 18th century.

In consequence, prices will tend to change proportionately with the quantity of money in circulation. Simply put, the quantity theory of money stated that inflation or deflation could be controlled by varying the quantity of money in circulation inversely with the level of prices.

Keynes asserted that the link between the money stock and the level of national income was weak and that the effect of the money supply on prices was virtually nil—at least in economies with heavy unemploymentsuch as those of the s.

An analysis of two controversial economic policies keynesian and supply side economics

He emphasized instead the importance of government budgetary and tax policy and direct control of investment. In the s, however, there was a remarkable revival of the older view, at least among a small but growing school of American monetary economists led by Friedman.

They argued that the effects of fiscal policy are unreliable unless the quantity of money is regulated at the same time. Basing their work on the old quantity theory of money, they tested the new version on a variety of data for different countries and time periods.

They concluded that the quantity of money does matter. A Monetary History of the United States, —by Milton Friedman and Anna Schwartzwhich became the benchmark work of monetarismcriticized Keynesian fiscal measures along with all other attempts at fine-tuning the economy.

With its emphasis on money supply, monetarism enjoyed an enormous vogue in the s but faded by the s as economists increasingly adopted an approach that combined the old Keynesian emphasis on fiscal policy with a new understanding of monetary policy.

Growth and development The study of economic growth and development is not a single branch of economics but falls, in fact, into two quite different fields. The two fields—growth and development—employ different methods of analysis and address two distinct types of inquiry.

Development economics is easy to characterize as one of the three major subfields of economics, along with microeconomics and macroeconomics. More specifically, development economics resembles economic history in that it seeks to explain the changes that occur in economic systems over time. The subject of economic growth is not so easy to characterize.

Indeed, it is the most technically demanding field in the whole of modern economics, impossible to grasp for anyone who lacks a command of differential calculus. Its focus is the properties of equilibrium paths, rather than equilibrium states. In applying economic growth theory, one makes a model of the economy and puts it into motion, requiring that the time paths described by the variables be self-sustaining in the sense that they continue to be related to each other in certain characteristic ways.

Then one can investigate the way economics might approach and reach these steady-state growth paths from given starting points.

Global Financial Crisis — Global Issues

Beautiful and frequently surprising theorems have emerged from this experience, but as yet there are no really testable implications nor even definite insights into how economies grow. Their independent work, joined in the Harrod-Domar modelis based on natural rates of growth and warranted rates of growth.

Keynes had shown that new investment has a multiplier effect on income and that the increased income generates extra savings to match the extra investment, without which the higher income level could not be sustained.

One may think of this as being repeated from period to period, remembering that investment, apart from raising income disproportionately, also generates the capacity to produce more output.


This results in products that cannot be sold unless there is more demand—that is, more consumption and more investment.

This is all there is to the model. It contains one behavioral condition: It also contains one technical condition: And it contains one equilibrium condition: Given these three conditions, the model generates a time path of income and even indicates what will happen if income falls off the path.

More complex models have since been built, incorporating different saving ratios for different groups in the population, technical conditions for each industry, definite assumptions about the character of technical progress in the economy, monetary and financial equations, and much more.

This was driven by competition along the lines of what Schumpeter called product innovations as distinct from process innovations. In contrast to the Harrod-Domar model, which viewed growth as exogenous, or coming from outside variables, the endogenous theory emphasizes growth from within the system.

Public finance Taxation has been a concern of economists since the time of Ricardo. Much interest centres on determining who really pays a tax.

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If a corporation faced with a profits tax reacts by raising the prices it charges for goods and services, it might succeed in passing the tax on to the consumer.

If, however, sales decline as a result of the rise in pricethe firm may have to reduce production and lay off some of its workers, meaning that the tax burden has been passed along not only to consumers but to wage earners and shareholders as well.

The literature of public finance in the 19th century was devoted to such problems, but Keynesian economics replaced the older emphasis on tax incidence with the analysis of the impact of government expenditures on the level of income and employment.Economic analysis and research summaries for a general audience.

The farm has changed since Stockman's boyhood; it is more specialized. The bright-red outbuildings behind the house include a wooden barn where livestock was once kept, a chicken coop also no.

As a follow-up to Tuesday’s post about the majority-minority public schools in Oslo, the following brief account reports the latest statistics on the cultural enrichment of schools in Austria. Vienna is the most fully enriched location, and seems to be in roughly the same situation as Oslo.

Many thanks to Hermes for the translation from The study of economic growth and development is not a single branch of economics but falls, in fact, into two quite different fields. The two fields—growth and development—employ different methods of analysis and address two distinct types of inquiry.

Like monetary and international economics. The global financial crisis, brewing for a while, really started to show its effects in the middle of and into Around the world stock markets have fallen, large financial institutions have collapsed or been bought out, and governments in even the wealthiest nations have had to come up with rescue packages to bail out their financial systems.

The yield spread between long-term and short-term Treasury securities is known to be a good predictor of economic activity, particularly of looming recessions.

Understanding Supply-Side Economics