Module History and Alternative Views of Macroeconomics

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Oct 28, 2013 (3 years and 7 months ago)

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Module

History and

Alternative Views of

Macroeconomics



KRUGMAN'S

MACROECONOMICS for
AP*

35

Margaret Ray and David Anderson

John Maynard Keynes & Milton Friedman

What you will learn

in this

Module
:


Why classical macroeconomics wasn’t
adequate for the problems posed by the
Great Depression


How Keynes and the experience of the
Great Depression legitimized
macroeconomic policy activism


What monetarism is and its views about
the limits of monetary policy


How challenges led to a revision of
Keynesian ideas and the emergence of
the new classical macroeconomics


Classical Macroeconomics:


Money and the Price Level


%∆ M = % ∆ PL


Short
-
Run Effects
Unimportant


Focus on the Long
-
Run


Keynes
-

“ (in the long
run) we are all dead.”




Classical Macroeconomics: The


Business Cycle


The Business Cycle


No theory of business
cycles


Lack of consensus


Necessity is the
mother of invention




Keynes’s Theory


The General Theory


Classical View


Keynesian View


“Animal Spirits”
(business confidence)




Keynes’s Theory

Classical
Theory

Keynesian

Theory


Challenges to Keynesian Economics:


The Revival of Monetary Policy


A Monetary History of the United
States, 1867
-

1960


Great Depression caued by Fed
contracting the money supply


Monetary policy is important
-

less
political


University of Chicago
Economist, Milton
Friedman


Challenges to Keynesian


Economics: Monetarism


Monetarism


Discretionary Policies
-

bad


Crowding Out


Monetary Policy Rule


Quantity Theory of Money, MV = PY


Velocity of Money


Erratic Velocity undermines Monetarism



Challenges to Keynesian Economics: Inflation
and the Natural Rate of Unemployment



Natural Rate Hypothesis


Limit to Discretionary Policy


Stagflation of 1970s proof of
Hypothesis


Natural Rate widely accepted



Challenges to Keynesian Economics:
The Political Business Cycle



Consequences of Keynes on Politics


Election Day Economics


Political Business Cycle


The need for central bank independence


President Obama and Senator McCain

Rational Expectations, Real Business
Cycles, and New Classical Macroeconomics


New Classical
Macroeconommics


Rational Expectations


New Keynesian Economics


Real Business Cycle Theory

Unnumbered Figure 35.1
The End of the Great Depression

Ray and Anderson: Krugman’s Macroeconomics for AP, First Edition

Copyright © 2011 by Worth Publishers

Figure 35.2
Fiscal Policy with a Fixed Money Supply

Ray and Anderson: Krugman’s Macroeconomics for AP, First
Edition

Copyright © 2011 by Worth Publishers

Figure 35.3
The Velocity of Money

Ray and Anderson: Krugman’s Macroeconomics for AP, First Edition

Copyright © 2011 by Worth Publishers