Readers Question: In a non-recession situation, if a government reduces it’s borrowing and thus it’s spending, how can that have a depressing effect on the economy? Wouldn’t that money be either be loaned to someone else or spent to on goods and services by the people who have it? Yes. If an economy is growing …
To recover from a recession there needs to be either a rise in AD or a readjustment in prices and wages. Classical economists argue that a recession will only be temporary because labour and product markets are flexible. However Keynesians argue that wage and price rigidity can keep the economy below full capacity for a …
Definition Chicago School – A strand of economic theory highlighting the benefits of free-market economics and critical of Keynesian government intervention The Chicago School of economists originated from the University of Chicago in the 1950s and 1960s. Influential economists such as Milton Friedman and George Stigler helped to define a new reaffirmation of classical / …
Austrian economics places great stress on free markets. It argues government efforts to control the economy cycle invariably make it worse. The main criticisms of Austrian economics include: The belief in the efficiency of markets is countered by many examples of market failure. E.g. growth of subprime mortgages / securitisation leading up to credit crisis …
Free market economics believes government intervention should be limited to the protection of private property. It is advocated by many economists especially in the Chicago, and Austrian school of Economics. However, although free markets have advantages, such as greater efficiency, there are several criticisms levelled at purely free market economies. Criticisms of free-market economics Inequality. …
People demand money for different reasons. The asset motive states that people demand money as a way to hold wealth. In a period of inflation,the value of money declines and therefore there is unlikely to be an asset motive for money. However, in a period of deflation, money increases in value and therefore there may …
Readers Question. We hear much about the “pensions time bomb”, as people tend to live longer and there is a bulge as “baby boomers” reach retirement age. We also hear much about the need to save for retirement. Saving *money* may mean people have more money in retirement but surely the real problem is to …
Casey B. Mulligan, from the University of Chicago suggests a theory for a major cause of the great recession and the rise in US unemployment post 2008. – Higher welfare payments. ..Redistribution, or subsidies and regulations intended to help the poor, unemployed, and financially distressed, have changed in many ways since the onset of the …