Economics-For Managers


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Pages : 263;Paperback;
210 X 275 mm approx.

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Economics For Managers, Management Textbook, Workbook

Macroeconomics : Classical & Keynesian Economics : Chapter 14

In this chapter we examined the different schools of thought in macro economics and the assumptions on which the economic theories are based. According to the classical approach, prices and wages are flexible and the economy is stable. The economy moves automatically and quickly to full employment equilibrium without any government intervention.

The Keynesian approach on the other hand is based on the assumption that prices and wages are inflexible and government needs to intervene to maintain stability of business cycle. Monetarists believe that it is only money supply that affects aggregate demand, output and prices whereas Keynesians argue that money helps in output determination along with spending variables like fiscal policy and net exports.

Keynesian economists, feel that output will significantly change if there is a change in nominal demand but the change in output will have very small effect on prices in the short run.

But Monetarists feel that a change in demand will change the prices not the real output. The Neo-classical approach is based on two assumptions: prices and wages are flexible and adjust quickly to balance supply and demand; people's expectation are formed on the basis of all available information and government cannot mislead them as they are well informed and have access to all the information about government's monetary and fiscal policies.

The early 1980s saw the emergence of a new school of thought that emphasized the impact of aggregate supply on the economic growth of nations. This new school of thought was called 'supply-side economics'. The supply-side economists believed that incentives and tax-rates influence the economy's aggregate supply to a great extent.

Chapter 14 : Overview

The Classical Tradition
Say's Law of Markets

The Keynesian Revolution
Keynesian Approach Vs Classical Economics

The Monetarist Approach
The History of Monetarism
The Velocity of Money
The Quantity Theory of Prices
Modern Monetarism

Comparison of Monetarist and Keynesian Approaches

New-Classical Macro Economics
Rational Expectations

Supply-Side Economics
Factors Determining Economic Growth in Supply-side Economics