DOC PREVIEW
Pitt ECON 0110 - Classic economic theory and different economic systems
Type Lecture Note
Pages 7

This preview shows page 1-2 out of 7 pages.

Save
View full document
View full document
Premium Document
Do you want full access? Go Premium and unlock all 7 pages.
Access to all documents
Download any document
Ad free experience
View full document
Premium Document
Do you want full access? Go Premium and unlock all 7 pages.
Access to all documents
Download any document
Ad free experience
Premium Document
Do you want full access? Go Premium and unlock all 7 pages.
Access to all documents
Download any document
Ad free experience

Unformatted text preview:

ECON 0110 1st Edition Lecture 5CLASSICAL ECONOMIC THEORY AND DIFFERENTECONOMIC SYSTEMSLast lecture: we talked about three major macroeconomics goalsCurrent lecture: we talked about the classical economic theory and different economic systems.CLASSICAL ECONOMIC THEORYThere is a natural tendency for the economy to move towardfull employmentAs a result, there is no need for fiscal or monetary policy.Thus, there is no need for government interference in theeconomy to try to reduce unemployment.CLASSICAL REASONINGThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.Unemployed workers compete against each otherWage rates will declineLower wages lead to increased profitsIncreased profits lead to increased employmentFull employment will be restoredKEYNESIAN ECONOMIC THEORYJohn Maynard KeynesThe General Theory Of Employment, Interest And Money,1936.Most famous economist of the 20th century.Argued that there is NO automatic tendency for the economyto move toward full employmentKEYNESIAN THEORYUnemployment is caused by a lack of sufficient aggregatedemandProducers adjust output to satisfy the desires of customersIf demand is low, output will be lowKEYNESIAN POLICY RECOMMENDATIONWhen aggregate demand is low, government should try toboost aggregate demandKEYNESIAN FISCAL POLICYOther things being equal, an increase in governmentspending will stimulate the economyOther things being equal, a tax cut will stimulate theeconomyQUESTIONS THAT NEED TO BE ANSWERED BY ANYECONOMIC SYSTEMWHAT types of goods will be produced?Consumption goodsInvestment goodsGovernment goodsHOW MUCH will be produced?WHO will get the output?HOW will the output be allocated?DIFFERENT ECONOMIC SYSTEMS:BARTER ECONOMYI exchange my goods or services for your goods or servicesExchange requires a double coincidence of wantsInefficientLAISSEZ FAIRE ECONOMYMinimal government interference in the economyCOMMAND, OR PLANNED, ECONOMYThe central government owns many of the factors ofproductionExamples: government might own the railroads, the oilfields, the iron mines, the banks, the hospitals, theschools, etc.Government planners often decide what will beproduced and who gets the outputExamples: The Soviet Union had “five Year Plans”whereby the central government decided how muchagricultural output would be produced. Thegovernments of the OPEC oil countries decided howmuch oil would be produced and exported to the rest ofthe world.CAPITALISM:Emphasis on the free market systemProducers and consumers are free to make their ownchoicesCHARACTERISTICS OF CAPITALISMPRIVATE OWNERSHIP of property and means of productionPROFIT MOTIVE gives producers incentive to produce whatpeople wantPRICES are free to move up and down and provide signalsabout when to increase or decrease productionFACTORS OF PRODUCTION:WHEN WE PRODUCE SOMETHING, WE USE VARIOUSFACTORS OF PRODUCTION1. LAND (all the natural resources)2. LABOR3. CAPITAL (tools, equipment, factories, etc.)4. ENTREPRENEURSHIP (risk taking by and leadership of thebusiness owners)WHY PROFITS ARE GOODWE HAVE INCREASED THE VALUE OF THE FACTORS OFPRODUCTIONWe earn a profit when we produce and sell a good or service at aprice that exceeds the cost of the factors used to produce


View Full Document

Pitt ECON 0110 - Classic economic theory and different economic systems

Download Classic economic theory and different economic systems
Our administrator received your request to download this document. We will send you the file to your email shortly.
Loading Unlocking...
Login

Join to view Classic economic theory and different economic systems and access 3M+ class-specific study document.

or
We will never post anything without your permission.
Don't have an account?
Sign Up

Join to view Classic economic theory and different economic systems 2 2 and access 3M+ class-specific study document.

or

By creating an account you agree to our Privacy Policy and Terms Of Use

Already a member?