September 14, 2019

MACROECONOMIC THOUGHTS.Part 4


Īf we agree with the labour market and envisaged that willing workers will be ready to work at prevailing wage, then we must have applied the J.B.Says Law.and classical economists often have problem in explaining involuntary employment and recession. Aggregate demand, the sum total of consumption and investment, in Keynes'model drive employment and output.Investment is driven by many factors, expectation, animal spirits and interest rates and given that consumption often remains stable ,most fluctuations in aggregate demand stem from it . According to him, fiscal policy could compensate for this volatility,  so during downturn, government could increase spending to buy excess goods and employ idle labour.Given the multiplier effect of this direct spending in which newly employed workers reciprocate by spending ther paid income to circulate in the economy,firms could only respond too growing investment, inspired by growth in demand. The notion for strong public investment  entertained by Keynes, had roots to his fears and interest  in uncertainty. In 'A Treatise On  Probability' published in 1921, Keynes, was first inspired by this major statistical inference and exerted strong influence even before his major works.He had strong belief that public investment and fiscal policy could counter negative impacts of economic fluctuations and likely uncertainty, can have on the economy. This certainly played a major role in the investment and liquidity preferences aspect of general theory. Though his successors paid little attention to the probabilistic part of the general theory, the appropriate meaning of the work had long been debated, including heavily debated policy prescription for employment.

September 13, 2019

MACROECONOMIC THOUGHTS PART 3

There is no empirical iota of doubt that mordern macroeconomics was begun by John Maynard Keynes specifically with the publication of his book, The general theory of Employment, Interest  and Money in 1936,the most widely read economic book of the twentieth century where he expanded liquidity preferences concept and built  complete or general theory of how  entire economy worked for the first time.It was landmark or unprecedented and the world became his ovation. In this masterpiece, he brought together monetary and economic factors, explained how to achieve economic stability with the right policy . Building on previous achievement, from the classical andthen neoclassical, he became by virtue of antecedent, the father of macroeconomics in the much same that we credit, Adam Smith, with the honour, 'the father of modern economics. 'He contended beyond a reasonable doubt that economic output is positively correlated ith velocity of money and explained relationship through liquidity preferences. That during difficult economic times, people tend to increase their money holding and similarly  reduce their spending, in an attempt to survive thestorm . According to him, this paradox of thrift,to escape the downturn by individuals tends to worsen it . When money demand increases, money velocity declines and such slow down might mean market might not clear, wasting excess capacity, goods and idle labour left unused.He argued that market changes quantity not prices and replaced stable velocity assumption with one of fixed price level.He also argued that the crash of spending does not necessarily leads to crash of prices, leaving surplus of goods to reduce the need for workers and grow employment.

September 11, 2019

MACROECONOMIC THOUGHTS.PART 2

The Keynesians that came later were able to devise models that take into consideration, price level changes and inflation, even though Keynes himself barely treated the influence of money supply on inflation. Although some Keynesians opposed the synthesis method of combining Keynes theory with an equilibrium methods,adopted disequilibrium method instead, still they were able to adopt Philips curve to model for price level changes.The generation of economists that came after Keynes , the monetarists led by Milton Friedman, also noted the setback, though adopted some of Keynes ideas, and advocated the significance of money demand and the role of money supply in inflation. The generation of Robert Luca , the new classical economists did not spare criticism  either challenged Keynesian model that failed to work under rational expectation and empirical models with lack lustre micro economic foundations. The new classical school metamorphosed into real business cycles . Both assumed that markets clear  and that changes in business cycle are not by demand but driven by changes in technology and supply . The criticism leveled by Lucas and other new classical economists,were also addressed by new Keynesians and they adopted rational expectation and built  empirical models laden with microfoundation of robust prices, with the notion that suggested recession  could still be explained by demand factors given rigidities to stop prices from crashing to market clearing level with surplus of goods and labor.The new neoclassical synthesis combined elements of new classical and new Keynesian into the consensus and were noted for the new neoclassical synthesis. Those who avoided their debate had gone ahead to devise new growth theories of longterm economic growth. The blogger himself a lay economist of the school of marsolism sometimes with bias for the Austrian school proposed new models and debt macroeconomics, given his skepticism of the emergence and growing gravity of the heterodox economics which is bound to plunge western economies int
o new palavers of monumental economic crisis.

September 10, 2019

MACROECONOMIC THOUGHTS PART 1

The evolution of macroeconomic thoughts and history though extremely complex are clearly interwoven with the protrusive fabric of mordern society.The blogger Ibikunle Laniyan peruses its brief history and the emergence of macroeconomic thoughts that shaped world economy.  The history of macroeconomic thoughts as well as the strategic ideology that underpins its explosive burst of the economic boom in mordern times, constitute the cradle of economic thoughts  and dynamic evolution . Macroeconomic theory invariably has its cradle in the study of business cycles and monetary theory.It is common among early theorists that monetary factors could not affect real factors such as  real outputs . When John Maynard Keynes came, he attacked some of this classical theories, then produced breathtaking general theory that described and capture the aggregate terms of the whole economy for the first time, rather than as an individual mic roeconomic parts. He debunked claims by classical economists that markets would always clear, without surplus of goods and zero idle labour left . He also attacked views by people and businesses to hoard cash and avoid investment during a recession.When the generation of cm economists that followed Keynes emerged they synthesized neoclassical microeconomics with his theory to form neoclassical synthesis.