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Classical macroeconomic theory

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What are the terms that are essential for understanding basic macroeconomics?

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Capital: the stock of equipment used in production.

Competition: the state in which there are enough participants in a market such that the actions of any one individual do not influence market prices.

Consumption: goods and services consumed by consumers.

Disposable income: the income that remains after paying taxes.

Exports: Goods or services sold to other countries.

Factors of production: the ...

Solution Summary

The solutions clearly and concisely defines the various terms associated with basic macroeconomics. One-two line definitions are provided for each of the terms. Some of the terms that are defined in the solution include factor prices, marginal propensity, export, income, consumption etc. This is an excellent response for a student who wishes to learn the basics of macroeconomics and understand some basic terms. However, it is not a detailed response. Overall, it is a good response which is brief and to the point.

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Macro-economics is perhaps the most divisive area of economics when applied to political decision making, and macro-economists divide themselves into different schools of thought. Two of the biggest camps are the Keynesians and the Monetarists. Keynesians and post-Keynesians follow the theories of John Maynard Keynes, the most-celebrated economist of the 20th century who proposed that government stabilize the economy with the use of fiscal policy. Monetarists, on the other hand, follow the teachings of Friedrich Hayek. For this assignment do some research on the ideas of Keynes and Hayek. Focus on the "big picture" of what their main ideas are and how they have influenced policy makers. Then write a 3 to 4-page paper addressing the following questions:

1. Compare and contrast what policies Keynes and Hayek advocated regarding how the federal government should manage the economy. (Note: There is no need to include biographical information about their lives)

2. Explain one real-world event that counters the theories of each of the following: Classical, New Classical, Keynesian, New Keynesian, and Monetarist.

3. Explain one real-world event that supports the theories of each of the following: Classical, New Classical, Keynesian, New Keynesian, and Monetarist.

4. You have learned that Keynes and Friedman sharply differed on some basic ideas of how the Federal government should conduct economic policy. Which of the two economists do you agree with more, and explain why.

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