how the economy works confidence crashes and self-fulfilling prophecies apr 2010

[...]... unemployment, inflation, and interest rates: how they are connected and how they are influenced by government monetary and fiscal policy How the Economy Works provides a verbal account of macroeconomics aimed at the general reader I explain the difference between two main approaches, classical and Keynesian, and I show how they have influenced the policy debate that developed in the wake of the world financial... monetary policy by the Bank of England and the Fed in the United States also helped What is different about the 2008 crisis is not the end of regulation; it is the fact that the interest rate is close to zero and central banks are unable to lower rates further to stimulate the economy This is exactly what happened in the United States in the 1930s, and it has happened again recently, not just in the United... Keynes, and why are his ideas relevant today? What is the role of the Federal Reserve System, the Bank of England, and the European Central Bank, and how do they affect your life? Does it really make sense for governments around the world to spend hundreds of billions of taxpayer dollars, pounds, and euros that they don’t have? In this book, I answer all of these questions and I illustrate the answers... say that is neither Keynesian nor classical Economists use models of the economy to nail down their assumptions about how the economy works A model is a mathematical description of an economic theory, and a good model is synonymous with a good theory Krugman is right in his assertion that there is no substitute for “a model with dotted i’s and crossed t’s” since it is by modeling the economy that we... understand the 2008 financial crisis, it helps to understand what the main protagonists think and how they arrived at their views The history of the twentieth century is the history of a struggle of ideas between classical and Keynesian economists that continues to this day Broadly speaking, there were two transformative events in the twentieth century, each of which led to a revolution in thought These... as dividends In the 1990s, Northern Rock was allowed by the government to convert itself into a profit-making institution INTRODUCTION 3 and to sell shares on the stock exchange In the early years of the new millennium, Northern Rock and other commercial banks began to make riskier loans and to borrow from each other on a short-term basis to provide the capital for their mortgages Northern Rock began... in response to the fiscal stimulus; the increase in saving partially offset the positive effect of the increased expenditure by government Fiscal policy can help the economy out of the recession; but it is not nearly as effective as the Keynesians think, and the cost will be a permanent increase in the size of the government sector that will be paid for by our grandchildren The director of the National Economic... often confounded The first relates to which goods and services should be provided by the free market and which by the government The second relates to the rules under which the free market will operate As a society, we must choose whether to provide publicly funded pension systems We must decide whether education is to be provided by the state or by the free market And we must decide whether health care... during which he presided over the worst collapse in economic activity in U.S economic history This was the beginning of the Great Depression, a decade-long drop in world economic output that scarred a generation 10 HOW THE ECONOMY WORKS and contributed in Germany to the rise of Hitler and the beginning of World War II THE GREAT DEPRESSION The Great Depression caused a change in the political sphere that... general equilibrium theory and the quantity theory of money General equilibrium theory was developed in 1874 by a French economist, Léon Walras, who taught at the University of Lausanne in Switzerland.1 It explains how much of every good is produced and how the price of each good is set relative to every other good For example, general equilibrium theory aims to tell us what determines how many hours will . x0 y0 w0 h0" alt="" How the Economy Works This page intentionally left blank How the Economy Works Confidence, Crashes and Self-Fulfilling Prophecies ROGER E. A. FARMER 1 2010 3 Oxford University. inflation, and interest rates: how they are connected and how they are influenced by government monetary and fiscal policy. How the Economy Works provides a verbal account of macroeco- nomics aimed at the. general reader. I explain the difference between two main approaches, classical and Keynesian, and I show how they have influenced the policy debate that developed in the wake of the world financial crisis