Module History and Alternative Views of Macroeconomics KRUGMAN'S MACROECONOMICS for AP* 35 Margaret...
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Transcript of Module History and Alternative Views of Macroeconomics KRUGMAN'S MACROECONOMICS for AP* 35 Margaret...
![Page 1: Module History and Alternative Views of Macroeconomics KRUGMAN'S MACROECONOMICS for AP* 35 Margaret Ray and David Anderson John Maynard Keynes & Milton.](https://reader035.fdocuments.net/reader035/viewer/2022062309/56649e755503460f94b75ca5/html5/thumbnails/1.jpg)
ModuleHistory andAlternative Views ofMacroeconomics
KRUGMAN'SMACROECONOMICS for AP*
35
Margaret Ray and David Anderson
John Maynard Keynes & Milton Friedman
![Page 2: Module History and Alternative Views of Macroeconomics KRUGMAN'S MACROECONOMICS for AP* 35 Margaret Ray and David Anderson John Maynard Keynes & Milton.](https://reader035.fdocuments.net/reader035/viewer/2022062309/56649e755503460f94b75ca5/html5/thumbnails/2.jpg)
What you will learnWhat you will learn
in thisin this ModuleModule::• 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
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Classical Macroeconomics:Classical Macroeconomics: Money and the Price Level 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.”
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Classical Macroeconomics: TheClassical Macroeconomics: The Business Cycle Business Cycle
•The Business Cycle
•No theory of business cycles
•Lack of consensus
•Necessity is the mother of invention
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Keynes’s TheoryKeynes’s Theory
•The General Theory
•Classical View
•Keynesian View
•“Animal Spirits” (business confidence)
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Keynes’s TheoryKeynes’s Theory
Classical Classical TheoryTheory
KeynesianKeynesianTheoryTheory
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Challenges to Keynesian Economics:Challenges to Keynesian Economics: The Revival of Monetary Policy 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 University of Chicago Economist, Chicago Economist,
Milton FriedmanMilton Friedman
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Challenges to KeynesianChallenges to Keynesian Economics: Monetarism Economics: Monetarism
•Monetarism
•Discretionary Policies - bad
•Crowding Out
•Monetary Policy Rule
•Quantity Theory of Money, MV = PY
•Velocity of Money
•Erratic Velocity undermines Monetarism
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Challenges to Keynesian Economics: Inflation Challenges to Keynesian Economics: Inflation and the Natural Rate of Unemploymentand the Natural Rate of Unemployment
•Natural Rate Hypothesis
•Limit to Discretionary Policy
•Stagflation of 1970s proof of Hypothesis
•Natural Rate widely accepted
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Challenges to Keynesian Economics: Challenges to Keynesian Economics: The Political Business CycleThe Political Business Cycle
•Consequences of Keynes on Politics
•Election Day Economics
•Political Business Cycle
•The need for central bank independencePresident Obama and Senator McCain
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Rational Expectations, Real Business Rational Expectations, Real Business Cycles, and New Classical MacroeconomicsCycles, and New Classical Macroeconomics
• New Classical Macroeconommics
• Rational Expectations
• New Keynesian Economics
• Real Business Cycle Theory
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Unnumbered Figure 35.1 The End of the Great DepressionRay and Anderson: Krugman’s Macroeconomics for AP, First
EditionCopyright © 2011 by Worth Publishers
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Figure 35.2 Fiscal Policy with a Fixed Money SupplyRay and Anderson: Krugman’s Macroeconomics for AP,
First EditionCopyright © 2011 by Worth Publishers
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Figure 35.3 The Velocity of MoneyRay and Anderson: Krugman’s Macroeconomics for AP, First
EditionCopyright © 2011 by Worth Publishers