Economics :: essays papers

Economics2CLASSICAL THEORY-The classical theory of employment is grounded in Says Law, the classical interest rate mechanism, and downwardly tractile prices and wages.-The aggregate supply slew is vertical at the full-employment level of output the aggregate demand curve is stable if the money supply is constant.-Government macroeconomic policies be unnecessary and counter-productive automatic, built-in mechanisms provide for full-employment output.KEYNESIAN THEORY-Keynesian analysis unlinks saving and investment plans and discredits downward price-wageflexibility, implying that changes in aggregate spending, output, and employment, are likely.-The aggregate supply curve is horizontal the aggregate demand curve is unstable largely because of the volatility of investment.-Active macroeconomic policies by government are necessary to mitigate recessions or deppressions.-Says Law is the disarming notion that the very act of producing goods generates an amount of income exactly equal to the value of the goods produced.-Supply creates its own demand.-Saving would constitute a leakage in the income-expenditure flows and would debase the ffective operation of Says Law.-Saving is a withdrawal of funds from the income stream which will cause consumption expenditures to fall short of total output.-Investment spending by businesses is a supplement to the income-expenditure stream which may fill any consumption gaparising from saving.-Keynesian economics hold that there ar etwo other sources of funds which can be made available in the money market 1)the accumulated money balances, 2)lending institutions.-The Keynesian position is that saving and investment plans can be at betting odds and thereby can result in fluctuations in total output, total income, employment, and the pricelevel.-The amount of goods and service produced and therefore the level of employment depend directly on the level of total or aggregate expenditures.-A consumption schedule indicates the variou s amounts households plan to consume at various possible levels of liquid income which might stomach at some specific point in time.-Because disposable income equals consumption plus saving (DI=C+S) you need only subtract consumption from disposable income to find the amount saved at each level of DI.-Break-even income is the level at which households consume their entire income.-APC= consumption/ income-APS= saving / income-APC + APS= 1-MPC= change in consumption/ change in income-MPS= change in saving / change in income-MPC + MPS = 1-Nonincome determinants of Consumption and Saving are wealth, price level, expectation, consumer indebtedness, taxation.-Consumption spending and saving both rise when disposable income increases they fall when disposable income decrases.-The norm propensity to consume is the fraction of any given level of disposable income which is consumed the average propensity to save is the fraction of any given level of disposable income which is saved.