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You can simply drag and drop slides from the appendix into the main presentation to make for a richer lecture experience. Get started now at: http://boundless.com/teaching-platform Free to edit, share, and copy Feel free to edit, share, and make as many copies of the Boundless presentations as you like. We encourage you to take these presentations and make them your own. If you have any questions or problems please email: educators@boundless.com Free to share, print, make copies and changes. Get yours at www.boundless.com About Boundless Boundless is an innovative technology company making education more affordable and accessible for students everywhere. The company creates the world’s best open educational content in 20+ subjects that align to more than 1,000 popular college textbooks. Boundless integrates learning technology into all its premium books to help students study more efficiently at a fraction of the cost of traditional textbooks. The company also empowers educators to engage their students more effectively through customizable books and intuitive teaching tools as part of the Boundless Teaching Platform. More than 2 million learners access Boundless free and premium content each month across the company’s wide distribution platforms, including its website, iOS apps, Kindle books, and iBooks. To get started learning or teaching with Boundless, visit boundless.com. Free to share, print, make copies and changes. Get yours at www.boundless.com Major Macroeconomic Theories > Short Introductions to Major Theories in Macroe... Short Introductions to Major Theories in Macroeconomics • Keynesian Theory • Monetarist • Austrian • Alternative Views Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/economics Major Macroeconomic Theories > Short Introductions to Major Theories in Macroe... Keynesian Theory • John Maynard Keynes published a book in 1936 called The General Theory of Employment, Interest, and Money, laying the groundwork for his legacy of the Keynesian Theory of Economics. • Keynes positioned his argument in contrast to this idea, stating that markets are imperfect and will not always self correct. • Keynes believed that wage reductions in recessions and excessive savings were potential threats to an economy. • Keynesian theory expects fiscal policy to offset business cycles (employ countercyclical strategies). John Maynard Keynes View on Boundless.com Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/economics/textbooks/boundless-economics-textbook/major-macroeconomic-theories-25/short-introductions-to-majortheories-in-macroeconomics-111/keynesian-theory-424-12521 Major Macroeconomic Theories > Short Introductions to Major Theories in Macroe... Monetarist • Clark Warburton, in 1945, has been identified as the first thinker to draft an empirically sound argument in favor of monetarism.This was taken more mainstream by Milton Friedman in 1956. • More money in the system results in higher spending and vice verse.This would theoretically provide some control over aggregate demand. • Historical implementation of monetarism demonstrated some correlation with control over inflation rates and increased economic performance.This could have been a result of other factors however. • The Austrian school of economic thought perceives monetarism as somewhat narrow-minded, not effectively taking into account the subjectivity involved in U.S. Inflation Rates View on Boundless.com valuing capital. • Due to the globalization of the economy, monetarism may have a negative impact on external economies.This is particularly true of the U.S., whose capital is an international standard. Free to share, print, make copies and changes. 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Austrian • The Austrian school of economics is one of the oldest economic perspectives, originating in the 19th century in Vienna. • Austrian economics is attributed for the identification of opportunity cost, capital and interest, inflation, business cycles and the organizing power of markets. • Austrian economists do not often place much weight on concepts such as econometrics, experimental economics, and aggregate macroeconomic analysis.In this sense, the Austrian school of thought is something of an outsider relative to other perspectives (i.e. classical, Keynesian, etc.). • Paul Krugman criticized Austrian economics as lacking explicit models of analysis, or essentially a lack of clarity in their approach.This results in inadvertent View on Boundless.com blind spots. Free to share, print, make copies and changes. 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Alternative Views • The history of different economic schools of thought have consistently generated evolving theories of economics as new data and new perspectives are taken into consideration. • The neoclassical perspective in conjunction with Keynesian ideas is referred to as the neoclassical synthesis, which is largely considered the 'mainstream' economic perspective. • A critical difference between classical and neoclassical perspectives is the introduction of marginalism.Marginalism notes that economic participants make decisions based on marginal utility or margins. • Neo-Keynesian economics is the formalization and coordination of Keynes's View on Boundless.com writings by a number of other economists (most notably John Hicks, Franco Modigliani and Paul Samuelson). • The important to understand that these economic perspectives add value to one another and the overall efficacy of all economic theory. Free to share, print, make copies and changes. 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Get yours at www.boundless.com Major Macroeconomic Theories Key terms • fiscal policy Government policy that attempts to influence the direction of the economy through changes in government spending or taxes. • gold standard A monetary system where the value of circulating money is linked to the value of gold. • Keynesian Of or pertaining to an economic theory based on the ideas of John Maynard Keynes, as put forward in his book The General Theory of Employment, Interest, and Money. • Monetarism The doctrine that economic systems are controlled by variations in the supply of money. • monetary policy The process of controlling the supply of money in an economy, often conducted by central banks. • Opportunity cost The cost of any activity measured in terms of the value of the next best alternative forgone (that is not chosen). • stagflation Inflation accompanied by stagnant growth, unemployment or recession. • static Unchanging; that cannot or does not change. • time value of money The time value of money is the principle that a certain currency amount of money today has a different buying power (value) than the same currency amount of money in the future. Free to share, print, make copies and changes. Get yours at www.boundless.com Major Macroeconomic Theories U.S. Inflation Rates The inflation rates over time in the U.S. represent some of the evidence put forward by monetarist economists, stating that governmental control of the money supply allows for some control over inflation. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikimedia. CC BY-SA http://upload.wikimedia.org/wikipedia/commons/8/83/US_Inflation.png View on Boundless.com Major Macroeconomic Theories IS-LM Model In this figure, the IS (Interest - Saving) curve is shifted outward in a way that raises both interest rates (i) and the 'real' economy (Y).The implication is that interest rates affect investment levels, and that these investment levels in turn affect the overall economy. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikimedia. CC BY-SA http://upload.wikimedia.org/wikipedia/commons/b/b9/Islm.svg View on Boundless.com Major Macroeconomic Theories Business Cycles Austrian economists identified the way in which banks issuing credit to institutions who could not generate the equivalent of the interest owed would eventually create a cyclical economic environment.In short, our credit systems enable or add significantly to the cyclical nature of economics. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikimedia. CC BY-SA http://upload.wikimedia.org/wikipedia/commons/f/fb/Economic_cycle.svg View on Boundless.com Major Macroeconomic Theories IS/LM Model John Hicks generated this model to capture the relationship between investment and savings (IS) compared with liquidity and the money supply (LM).This particular illustration denotes a shift in the IS curve, raising interest rates (y-axis) and real GDP (x-axis). Free to share, print, make copies and changes. Get yours at www.boundless.com Wikimedia. CC BY-SA http://upload.wikimedia.org/wikipedia/commons/b/b9/Islm.svg View on Boundless.com Major Macroeconomic Theories Phillips Curve The idea behind the Phillips Curve is that inflation and unemployment will generate correlations.This implies a trade off between inflationary rates and the creation of employment, which governments could consider in policy making.Stagflation created issues with this however, leading to the development of New Keynesian ideas. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikimedia. CC BY-SA http://upload.wikimedia.org/wikipedia/commons/d/d4/Philipsus60.png View on Boundless.com Major Macroeconomic Theories John Maynard Keynes John Maynard Keynes came to fame after publishing his economic theories during the Great Depression. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikipedia. "John Maynard Keynes." Public domain http://en.wikipedia.org/wiki/File:John_Maynard_Keynes.jpg View on Boundless.com Major Macroeconomic Theories According to Keynes, fiscal policy should be designed in a way that is: A) Cyclical B) Laissez-Faire C) As limited as possible D) Counter-cyclical Free to share, print, make copies and changes. Get yours at www.boundless.com Major Macroeconomic Theories According to Keynes, fiscal policy should be designed in a way that is: A) Cyclical B) Laissez-Faire C) As limited as possible D) Counter-cyclical Free to share, print, make copies and changes. Get yours at www.boundless.com Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/ Major Macroeconomic Theories In Keynesian Economics, it is NOT assumed that: A) Aggregate demand will be equal to the supply. B) Aggregate supply will be equal to the demand. C) Fiscal policy should be counter-cyclical. D) Excessive saving is a potential economic threat. Free to share, print, make copies and changes. Get yours at www.boundless.com Major Macroeconomic Theories In Keynesian Economics, it is NOT assumed that: A) Aggregate demand will be equal to the supply. B) Aggregate supply will be equal to the demand. C) Fiscal policy should be counter-cyclical. D) Excessive saving is a potential economic threat. Free to share, print, make copies and changes. Get yours at www.boundless.com Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/ Major Macroeconomic Theories Who is the first economists credited with identifying empirical evidence for a monetarist perspective? A) Friendman B) Schwartz C) Warburton D) Volcker Free to share, print, make copies and changes. Get yours at www.boundless.com Major Macroeconomic Theories Who is the first economists credited with identifying empirical evidence for a monetarist perspective? A) Friendman B) Schwartz C) Warburton D) Volcker Free to share, print, make copies and changes. Get yours at www.boundless.com Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/ Major Macroeconomic Theories Which school of economic thought criticizes monetarism for being subjective? A) Classical B) Neo-Classical C) Austrian D) Keynesian Free to share, print, make copies and changes. Get yours at www.boundless.com Major Macroeconomic Theories Which school of economic thought criticizes monetarism for being subjective? A) Classical B) Neo-Classical C) Austrian D) Keynesian Free to share, print, make copies and changes. Get yours at www.boundless.com Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/ Major Macroeconomic Theories The inherent value of the next foregone conclusion in an economic decision is called: A) Opportunity Cost B) The Organizing Power of Markets C) Business Cycles D) Interest Free to share, print, make copies and changes. Get yours at www.boundless.com Major Macroeconomic Theories The inherent value of the next foregone conclusion in an economic decision is called: A) Opportunity Cost B) The Organizing Power of Markets C) Business Cycles D) Interest Free to share, print, make copies and changes. Get yours at www.boundless.com Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/ Major Macroeconomic Theories Neoclassic and neo-Keynesian economics are alternative views in economics which have combined to form: A) The neo-Keynesian synthesis B) The Austrian School C) The Chicago School D) The neoclassical synthesis Free to share, print, make copies and changes. Get yours at www.boundless.com Major Macroeconomic Theories Neoclassic and neo-Keynesian economics are alternative views in economics which have combined to form: A) The neo-Keynesian synthesis B) The Austrian School C) The Chicago School D) The neoclassical synthesis Free to share, print, make copies and changes. Get yours at www.boundless.com Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/ Major Macroeconomic Theories Attribution • Wikipedia. "IS/LM model." CC BY-SA 3.0 http://en.wikipedia.org/wiki/IS/LM_model • Wikipedia. "Keynesian economics." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Keynesian_economics • Wikipedia. "Macroeconomics." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Macroeconomics • Wiktionary. "Keynesian." CC BY-SA 3.0 http://en.wiktionary.org/wiki/Keynesian • Wiktionary. "monetary policy." CC BY-SA 3.0 http://en.wiktionary.org/wiki/monetary+policy • Wiktionary. "fiscal policy." CC BY-SA 3.0 http://en.wiktionary.org/wiki/fiscal+policy • Wikipedia. "Monetarism." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Monetarism • Wikipedia. "Macroeconomics." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Macroeconomics • Wiktionary. "gold standard." CC BY-SA 3.0 http://en.wiktionary.org/wiki/gold+standard • Wiktionary. "Monetarism." CC BY-SA 3.0 http://en.wiktionary.org/wiki/Monetarism • Wikipedia. "Austrian School." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Austrian_School • Wikipedia. "Macroeconomics." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Macroeconomics • Wikipedia. "time value of money." CC BY-SA 3.0 http://en.wikipedia.org/wiki/time+value+of+money • Wiktionary. "Opportunity cost." CC BY-SA 3.0 http://en.wiktionary.org/wiki/Opportunity+cost • Wikipedia. "Chicago school (economics)." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Chicago_school_(economics) • Wikipedia. "New Keynesian." CC BY-SA 3.0 http://en.wikipedia.org/wiki/New_Keynesian • Wikipedia. "New classical macroeconomics." CC BY-SA 3.0 http://en.wikipedia.org/wiki/New_classical_macroeconomics Free to share, print, make copies and changes. Get yours at www.boundless.com Major Macroeconomic Theories • Wikipedia. "Macroeconomics." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Macroeconomics • Wiktionary. "static." CC BY-SA 3.0 http://en.wiktionary.org/wiki/static • Wiktionary. "stagflation." CC BY-SA 3.0 http://en.wiktionary.org/wiki/stagflation Free to share, print, make copies and changes. Get yours at www.boundless.com