Economics To-Learn

Revision as of 05:41, 4 March 2008

understand this:

" The rise of the popularity of monetarism in political circles accelerated when Keynesian economics seemed unable to explain or cure the seemingly contradictory problems of rising unemployment and inflation in response to the collapse of the Bretton Woods system in 1972 and the oil shocks of 1973. On the one hand, higher unemployment seemed to call for Keynesian reflation, but on the other hand rising inflation seemed to call for Keynesian deflation. The result was a significant disillusionment with Keynesian demand management: a Democratic President Jimmy Carter appointed a monetarist Federal Reserve chief Paul Volcker who made inflation fighting his primary objective, and restricted the money supply to tame inflation in the economy. The result was the most severe recession of the post-war period, but also the creation of the desired price stability. "

from wp:[1]

Do i get this?

"Most economists favor the use of automatic stabilization over active or discretionary use of deficits to fight mild recessions (or surpluses to combat inflation)." [2]

is the idea here (surplus to combat inflation) that the gov is sitting on extra money, reducing supply and making available money worth more?

Meaningful quote:

"

however, rates begin to rise once the demand for capital is re-established by growing economic activity.

"[3]

Lots to read

" The result of this shift in methodology produced several important divergences from Keynesian Macro economics: [4]

  1. Independence of Consumption and current Income (life-cycle permanent income hypothesis)
  2. Irrelevance of Current Profits to Investment (Modigliani-Miller theorem)
  3. Long run independence of inflation and unemployment (natural rate of unemployment)
  4. The inability of monetary policy to stabilize output (rational expectations)
  5. Irrelevance of Taxes and Budget Deficits to Consumption (Ricardian Equivalence)

" from the Keynes page

huh?

" Cycles between 1945 and the 1990s in the United States were generally more restrained and followed political factors, such as fiscal policy and monetary policy. Automatic stabilisation due to the government's budget helped defeat the cycle even without conscious action done by policy-makers; "[4]