Macroeconomics
➔ Another attempt to reduce unemployment to UR₁ will now eventually move the economy to SRPC₃ and push up the inflation rate to Inf₂ (points D then E). Notethatwhenpeopleexpectadecreaseintheinflationrate,theSRPCshiftstotheleft(e.g.,SRPC₃to SRPC₂) by an amount equal to the anticipated decrease in the inflation rate. M. Economic Philosophies Now that we understand the different models used to reflect the economy’s state and how self-adjustment or government intervention work, let’s summarize the different views of economic theory.
Classical Economics Classical economists hold the belief in laissez-faire economics, which means they advocate minimalgovernmentinterventionintheeconomy. Theybelievethat marketsareself-regulating and will naturally correct themselves over time. Classicaleconomicsemphasizesfactorslikesupplyanddemand,competition,andtheinvisiblehandof the market (self-adjustment). They argue that government interference, such as taxes and regulations, can distort market mechanisms and lead to ineffciencies. Classical economics was prominent during the 18th and 19th centuries and was associated with thinkers like Adam Smith. It laid the foundation for many free-market economic theories. Below is anexampleonhowmainstreameconomistsvs.Classicaleconomistssuggestdealingwithan economic recession.
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