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In order for developing countries to catch up economically with the developed ones at
the early state of development, a process of rapid productivity growth and structural change is
needed. This involves industrial policy to encourage the development and growth of specific
manufacturing sector of the economy during the early catch-up stage. Yet it has been far from
a universal success story across developing countries. In fact, there were only a few countries
have made the successful transition, such as Japan and South Korea during the 1960s and
1980s. Corruption and rent-seeking behaviour have often been blamed for these failures, yet
such studies ignore the pervasiveness of rent-seeking in all modern economies. Corruption
tends to be a structural feature of all developing countries. While all developing countries
suffer from rent-seeking, the major differences between successful late-developers and those
countries have not performed as well, are the rent outcomes produced by rent-seeking
processes.

In short run, banks make loans when creditworthy customers have demand for loans and it is
not constrained by reserves or reserves ratio. Money supply is determined at the same time with
every new lending is made and it can be expanded or contracted. However, banks might ease
lending standards and issue more loans than their customers can actually pay back. This raises
instability in the banking system. Therefore, central bank exists primarily to ensure that the
payments system in the monetary system is stable by supplying reserves to the banking system
if the banking system as a whole cannot meet its reserve requirements.

1.individual banks give loan unconstrained bring problems:

1.unqualified people/change the overnight interest rate(稍微提一下financial crisis）
2.short run security mismatch(insolvency)
asset is liquid in the long term, but money is super liquid. too much of money transaction in a
short period could lead insolvency.
3.central bank的一个作用：
1.lender of the last resort/stablize the economic system
Lender of the last resort

the benefits of investment increase

- econimic growth
- employment
- economic evolution
- productivit
- environment
effective ways of increasing investnent
- effective industurial policy
- increase infranstructure expenditure
- better disturbution of increase aggregate demand
Business investment has remained sluggish
- new investment has not kept up the growth of profit
- busniess pay off the debt and accumating cash (dead money)
- companies are not take advantage of new technology
- the rish of less c.q/
sluggish performance of investment
- existence of excess capacity
- policies redistributing income towards capitalist class
解释investment increase的好处：
1. investment上升 AD上升economic变好living standard变好/employment
变高
2. but business still remain sluggish
3.Stop sitting on ‘dead money’ because New investment has not kept up
with the growth of profits 如果capacity已经饱和了的话，even if the investment
is effective也不要去投资(“dead money”, according to Mark Carney)
Companies are not taking advantage of new technology to boost productivity
and generate employment What explains this sluggish performance of
investment?
4. 社会上的需求不是不断地投资，而是effective的investment

Scarth points out high investment → high saving (low consumption)

我们可以通过画图（看ppt）发现当interest rate 上升时 the investment 会下降

首先肯定investment跟saving是有联系的：
From firm’s point of view, its decision for investment is determined by the interest rate.
For example, if the rate of the interest rate is higher than firm’s investment return, then
firm will save money to get the overall higher return.

Also, changes in interest rates affect the public's demand for goods and services and,
thus, aggregate investment spending. A decrease in interest rates lowers the cost of
borrowing, which encourages businesses to increase investment spending. Lower
interest rates also give banks more incentive to lend to businesses and households,
allowing them to spend more.

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First, a rise in the wage rate increases the costs of firms producing the commodity, forcing
them to raise their selling prices. As the price of the product rises consumers will buy less of it and
less output will be produced and sold. This means that less labour will be used.
Second, since a rise in wages makes labour more expensive relative to capital, firms will
substitute capital for labour. This means that less labour will be used to produce whatever output the
firms in the industry sell.

In Orthodox view, the labour market is always in equilibrium, meaning that the demand for and
supply of labour are always equal. Firm’s demand for labour decrease when real wages increase.
More labour supplies because they agree to work longer hours or because more workers enter the
workforce.

A decrease in real wages will cause a reduction in employment, workers will refuse to work at the
new real wage rate and quit the job. Thus, even with lower costs paid on workers, it does not
necessarily result into an increase in overall aggregate output since workers are voluntarily
unemployed.

3.解释它为什么下降 wage下降 employment下降

 According to the Keynesian view, the reason of low employment (recession) is
because there aren’t enough expenditures in the economy. This means that when firms
expect to sell more, they produce more and therefore requires higher employment. Notice that
aggregate demand depends on consumption, investment, government expenditure and net
exports, government policies will therefore affect the aggregate demand and employment.
However, instead of implementing a fiscal austerity, either an expansionary monetary policy or
an expansionary fiscal policy can stimulate the economy.
During a recession, total spending in economy decreases, as people demand fewer
goods and services. Keynesian economists believe that government could increase government
spending on goods and tax reduction to boost the aggregate demand
Expansionary fiscal policy is often used during a recession (like euro crisis) to increase
the demand for goods and services and lead to increased production. It would allow more
consumer spending and investment. Therefore, only by increasing public debts could make the
interest rates decrease, and boost investors’ confidence and increase both investment and
consumption.

1.解释这个view是啥
2.解释这个view为啥是错的：
This view is associated with the neoclassical thought which suggest that
unemployment is voluntary and it is the phenomenon of the supply-side. In their
view, unemployment happens because of 2 main reasons.
One is that people not prefer to work after estimating the real wage rate. It
states that individual may reject the job because of overestimating the future
price level or expectation of inflation rate and which causes the cyclical
fluctuation of the unemployment. There is no need for government intervention
because the market depends on decision of workers to work or not. However,
this theory looks nonsense, only few workers care and know about the inflation.
Furthermore, empirical studies showed that people quit the job when
unemployment is low and following and it is involuntary for workers to quit their
job during the recession (2008 ). Moreover in Keynesian theory, the negative
impact of high wage only occur when high wage cut too much profit of firm,
otherwise it may create more job. All these conservations and evidences
contradict to the mainstream views.

Secondly, neoclassical economists states that it is rigidity (minimum wage

policies, labour unions, unemployment insurances) that encourages worker quit
their job and stops the labour market feely adjusting to the full employment. They
believes the existence of NAIRU that the rate of unemployment keeps the rate of
inflation in a steady level in long run and more rigidities there are, the higher
NAIRU will be. Even there are some relationship between inflation and
unemployment, the causality might be reverse. However, According to the
heterodox views( Keynesian), it argues that the main reasons of increasing in
unemployment is a lack of aggregate demand. And fiscal policies or monetary
policy can stimulate the increase of aggregate demand and increase the
productive capacity. Then, Private sector will increase the investment and
production which eventually generate high employment.

In Canada and many other developed countries, the risk is not of higher wages rising
unemployment; it is rather of stagnating wages causing household demand to remain
depressed or grow only sluggishly, thereby deterring businesses from investing·.·.(tracy)
The statement is supported by the Keynesian views of the demand side of the
unemployment. In their perspective, unemployment is the result of the insufficient
of aggregate demand as well as the productive capacity. Firm will only invest and
product only if there is enough expenditure in the society. Consumption is depend
on the propensity of consume, higher the value is, the higher the aggregate
demand and lower unemployment rate. Also, the value of propensity of consume
basically depends on the real wage. If company redistribution toward wage rather
profit and keep the same productivity, the aggregate demand will increase as well
as the employment, since household have more budgets to consume. Thus, we
see that the high wage will generate high employment. As long as the positive
impacts of high wage overcome the negative impacts of investment, the high wage
will stimulate the growth of the economic development. And firm is also beneficial
for the overall increase of the consumption then they will voluntarily increase the
investment and hire more labour.