Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
International Economics
Classical Economics vs. Keynesian View
Neoclassical Theory
(A. Smith; J.B. Say etc.)
Keynesian Theory
(In)Stability of the
private sector
Stability
Market Optimism
Instability
Market Pessimism
Theoretical
Foundation
Preferred Policy
Monetary Policy
(Monetarists)
Fiscal Policy
(Fiscalists)
Understanding of
the State
Liberalism/Laissez faire
Interventions
Highest Priority of
Policy Making
Full Employment
Strategy
Pro-cyclicality
Production Potential Ypot
Economic Growth
Counter-cyclicality
Cycle-oriented (AEY)
Economic Cycles
Supply oriented
Long term (trend)
Price theory
Unlimited wants and needs
Demand oriented
Short term (cycles)
Cycle theory
Limits
Basic Questions:
What causes
instability in the
economy?
Is the economy selfcorrecting?
Should government
adhere to rules or
use discretion in
setting economic
policy?
International Economics
Keynesian Cross
International Economics
Private Households
YH = C+S; C=C(Y)
Keynesian consumption function:
C = C0+c*Y
or
Caut+c*Y
c*Y = MPC
= marginal propensity to consume
International Economics
Example; Assumption: MPC=80%
500
Ca+cY = C
100+0,8*0 = 100
100
100+0,8*100 = 180
200
100+0,8*200 = 260
300
100+0,8*300 = 340
400
100+0,8*400 = 420
500
100+0,8*500 = 500
600
100+0,8*600 = 580
International Economics
Y-C = S Y = Caut+cY+S
S = Y-C
S = -Caut+(1-c)*Y
S = -Caut+sY
sY = MPS = marginal propensity to save
International Economics
Back to the example
Y = 500
c0 = 100
cY = 0.8
500
S=0
Y>500
S>0
Y<500
S<0
International Economics
The Paradox of Thrift (Savings are rising .
International Economics
Keynesian Cross
International Economics
Increasing Government Spending
10
International Economics
but consumptions
and investments
11
International Economics
Multiplier
1
1
12
International Economics
Example
Y=
Y=
1
(
(1)
+ + )
(10,8)
(10,8)
International Economics
I=S IS Curve
14
International Economics
IS Curve (2)
15
International Economics
Loanable Funds Market and IS Curve
16
International Economics
The Goods Market and Fiscal Policy
17
International Economics
Three functions of money
Money is anything that is generally accepted as a means of payment.
Barter Trade
18
International Economics
The demand for money
Transaction motive*
Speculative motive
*Precautionary motive:
People often demand money as a precaution against an uncertain future (e.g. unexpected expenses)
19
International Economics
Money Market
20
International Economics
Monetary Policy
21
International Economics
M/P=L=LT(Y)+LS(i) LM Curve
22
International Economics
LM Curve (2)
23
International Economics
The Money Market and Monetary Policy
24
International Economics
Fiscal and Monetary Policy
25
International Economics
Special Cases: The Role of Expectations
Investment Trap
Liquidity Trap
26