Beruflich Dokumente
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Keynesian
Monetarist
New classicalist
New Keynesian
Post Keynesian
Olivier Blanchard
Real wage
Production function
Law of diminishing returns
Competitive labour
market
Demand for labour
Negatively related to
the real
wage rate
Supply of labour
Positively related to the
Says Law
Supply creates its own
demand
A product
is no sooner created, than it, from that
instant, affords a market for other products to the
full extent of its own value ... The mere
circumstances of the creation of one product
immediately open a vent for other products. (Say,
1821)
Could we suddenly double the productive powers
of a country, we should double the supply of
commodities in every market: but we should, by the
same stroke, double the purchasing power. (J.S.
Mill)
Money does grow on trees
Real wage
There are no
unexploited
opportunities
There are no
R100 notes on the
pavement
100
Production
creates
income
creates
spending
100
100
Production
creates
income
creates
spending
100
100
Production
creates
income
creates
spending
80
100
100
Production
creates
income
creates
spending
80
20
100
100
Production
creates
income
creates
spending
80
20
20
100
100
Production
creates
income
creates
spending
80
20
20
Money is neutral
Real
wage
Lt
Structural and
frictional
Unemployment
Real wage
Change in technology
Change in productivity
Change in labour supply
Change in capital
Wages fell
Prices fell
Output fell
Unemployment increased
100
80
20
JM Keynes
100
100
80
20
20
100
100
80
20
100
100
80
20
100
100
80
20
Investment spending
Expected profitability of investment
Interest rate
How does a change in investment spending influence
output?
Multiplier effect
Labour market
Involuntary unemployment
In the event of a small rise in the price of wage-goods relative to the money- wage,
both the aggregate supply of labour willing to work for the current money-wage and
aggregate demand for it at that wage would be greater than the existing volume of
employment
IS-LM model
AS-AD model
Phillips curve
Classical view
Says Law: (aggregate) supply creates its own (aggregate) demand
Says Law holds for a barter economy
Says Law also holds for a money economy since money is seen purely as a
medium of exchange, not as a store of value
Weak version of Says Law: production automatically generates income as
payment to the factor inputs which is equivalent to purchase all the output produced
Strong version of Says Law: In addition, the output produced is the full employment
level of output
Thus the strong version of Says Law implies that there is no barrier in a free
market economy with perfectly flexible wages and prices to achieving full employment
Income is either consumed (C) or saved (S) and saving is always spent elsewhere
in the economy
Flexible interest rate (r) ensures that the desired amount of saving always equals
the desired amount of investment spending (loanable funds theory of r)
Y = C(r) + S(r) and E = C(r) + I(r). Since Y = E, then S(r) = I(r)
Neutrality of money: changes in demand for or the supply of money do not
affect real output, employment and relative prices
Keynesian view
Says Law a special case, only holds when aggregate demand (AD) = aggregate
supply (AS)
Principle of Effective Demand: output and employment determined by aggregate
desired spending
If AD AS, it is mainly quantity and not price adjustments that restore equilibrium
AD = E = C + I
C and S are passive, are a function of Y more than they are of r
Money serves as a store of value as well as a medium of exchange
Liquidity preference: in times of uncertainty money may be hoarded
(this implies non-neutrality of money)
Thus S will not necessarily be spent elsewhere, irrespective of changes in r
If S > I, it is mainly via decreases in output, employment and income (Y) that
equilibrium S = I is restored
The effect of autonomous changes in C or I on Y is magnified by the multiplier
Involuntary unemployment
Classical explanation:
No aggregate demand deficiency in terms of Says Law
Labour market: full employment equilibrium is maintained by flexible
real wages
Demand for labour by profit maximising firms: determined by workers
marginal productivity of labour
Supply of labour by utility maximising worker: determined by individual
choice or trade-off between work and leisure
Thus in perfectly competitive markets involuntary unemployment cannot
persist all observed unemployment is either voluntary or frictional
Involuntary unemployment can only persist in uncompetitive or regulated
labour markets
Keynesian explanation:
Aggregate demand deficiencies lead to lower output and employment
(reversal of Says Law)
If AD < AS, then involuntary unemployment is likely to occur and to persist
Downward rigidity of nominal (money) wages prevent labour market from clearing
Real wage can be reduced by increasing AD and allowing the price level to increase
MV = PY
In the short run M influences both
P and Y but in the long run only P
Robert Lucas
Rational behaviour
Rational expectations
Market clearing
Chapter 7
Firms
Prefer to cut
production
Risk averse
Credit rationing
(Figure 7.9)
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Target
Interest rate
Chapter 8
Post Keynesians
Major works of Paul Davidson
"A Clarification of the Ricardian Rent Share", 1959, Canadian J of Econ and Political Science.
"Increasing Employment, Diminishing Returns, Relative Shares, and Ricardo", 1960, Canadian J of
Econ and Political Science, 1960.
Theories of Aggregate Income Distribution, 1960.
"More on the Aggregate Supply Function," 1962, EJ.
Employment and Income Multipliers and the Price Level," 1962, AER
"Public Policy Problems of the Domestic Crude Oil Industry", 1963, AER.
"Modigliani on the Interaction of Real and Monetary Phenomena", with E. Smolensky, 1964, REStat.
Aggregate Supply and Demand Analysis with E. Smolensky, 1964.
"Keynes's Finance Motive", 1965, Oxford EP.
"The Importance of the Demand for Finance", 1967, Oxford EP.
"A Keynesian View of Patinkin's Theory of Employment", 1967, EJ.
"The Valuation of Public Goods," 1968, in Garnsey and Hibbs, editors, Social Sciences and the
Environment.
"Money, Portfolio Balance, Capital Accumulation, and Economic Growth," 1968, Econometrica.
"The Demand and Supply of Securities and Economic Growth and its implications for the KaldorPasinetti vs. Samuelson-Modigliani controversy", 1968, AER.
"A Keynesian View of the Relationship Between Accumulation, Money and the Money Wage Rate",
1969, EJ.
"Money and the Real World", 1972, EJ
"A Keynesian View of Friedman's Theoretical Framework for Monetary Analysis," 1972, JPE.
Money and the Real World, 1972.
"Money as Cause and Effect", with S. Weintraub, 1973, EJ.
"Market Disequilibrium Adjustments: Marshall Revisited," 1974, Econ Inquiry.
Oil: Its Time Allocation and Project Independence," with L.H. Falk and H. Lee, 1974, BPEA.
"Post-Keynesian Monetary Theory and Inflation", 1977, in Weintraub, editor, Modern Economic Thought.
"A Discussion of Leijonhufvud's Social Consequences of Inflation", 1977, in Harcourt, editor, Microfoundations of Macroeconomics.
"The Carter Energy Proposal", 1977, Challenge.
"Money and General Equilibrium," 1977, Economie Appliquee.
"Why Money Matters: Some Lessons of the Past Half Century of Monetary Theory", 1978, JPKE.
"The United States Internal Revenue Service: The Fourteenth Member of OPEC?", 1979, JPKE.
"Post Keynesian Approach to the Theory of Natural Resources", 1979, Challenge.
"Monetary Policy, Regulation and International Adjustments," with M.A. Miles, 1979, Economies et Societies.
"Oil Conservation: Theory vs. Policy", 1979, JPKE
"What Is the Energy Crisis?", 1979, Challenge
"Keynes's Paradigm: A Theoretical Framework for Monetary Analysis", with J.A. Kregel, 1980, in Nell, editor, Growth, Property and Profits.
"The Dual Faceted Nature of the Keynesian Revolution: The Role of Money and Money Wages in Determining Unemployment and
Production Flow Prices," 1980, JPKE.
"Keynes's Theory of Employment, Expectations and Indexing", 1980, Revista de Economia Latinoamericana
"Post Keynesian Economics: Solving the Crisis in Economic Theory", 1981, in Bell and Kristol, editors, The Crisis in Economic Theory.
"Can VAT Resolve the Shortage of Savings (SOS) Distress?", 1981, JPKE.
"Alfred Marshall is Alive and Well in Post Keynesian Economics", 1981, IHS Journal.
"A Critical Analysis of the Monetarist-Rational Expectations Supply Side (Incentive) Economics Approach to Accumulation During a Period
of Inflationary Expectations," 1981, Kredit und Kapital.
International Money and the Real World, 1982.
"Rational Expectations: A Fallacious Foundation for Studying Crucial Decision-Making Processes", 1982, JPKE
"Monetarism and Reagonomics", 1983, in Weintraub and Goodstein, editors, Reagonomics in the Stagflation Economy.
"The Dubious Labor Market Analysis in Meltzer's Restatement of Keynes's Theory," 1983, JEL.
"The Marginal Product Curve Is Not The Demand Curve For Labor and Lucas' Labor Supply Function Is Not the Supply Curve for Labor",
1983, JPKE.
"An Appraisal of Weintraub's Work", 1983, Eastern EJ.
"Reviving Keynes's Revolution", 1984, JPKE.
"The Conventional Wisdom on Deficits Is Wrong", 1984, Challenge.
"Incomes Policy as a Social Institution", 1985, in Maital and Lipnowski, editors, Macroeconomic Conflict and Social Institutions.
"Policies For Prices And Incomes", 1985, in Barrere, editor, Keynes Today.
"Financial Markets and Williamson's Theory of Governance: Efficiency vs. Concentration vs. Power", with G.S. Davidson, 1984, Quarterly
Review of Economics and Business.
"Liquidity and Not Increasing Returns Is The Ultimate Source of Unemployment Equilibrium", 1985, JPKE.
"Can Effective Demand and the Movement Towards Income Equality Be Maintained in the Face of Robotics ?", 1985, JPKE.
"Sidney Weintraub - An Economist of the Real World", 1985, JPKE.
"A Post Keynesian View of Theories and Causes of High Real Interest Rates", 1986, Thames Papers in Political Economy.
"Finance, Funding, Savings, and Investment", 1986, JPKE.
"The Simple Macroeconomics of a Nonergodic Monetary Economy vs. a Share Economy: Is Weitzman's macroeconomics too simple?", 1986,
JPKE.
"Financial Markets, Investment, and Employment", 1988, in Matzner et al, editors, Barriers to Full Employment.
"Sensible Expectations and the Long-Run Non-Neutrality of Money", 1987, JPKE.
"A Modest Set of Proposals for Remedying The International Debt Problem", 1987, JPKE.
"Weitzman's Share Economy And The Aggregate Supply Function", 1988, in Hamouda and Smithin, editors, Keynes and Public Policy After
Fifty Years.
"Endogenous Money, The Production Process, And Inflation Analysis", 1988, Economie Apliquee
"A Technical Definition of Uncertainty and the Long Run Non- Neutrality of Money", 1988, Cambridge JE.
Economics for a Civilized Society, with G. Davidson, 1988.
"Keynes and Money" 1989, in Hill, editor, Keynes, Money, and Monetarism
"Prices and Income Policy: An Essay in Honor of Sidney Weintraub", 1989, in Barrere, editor, Money, Credit, and Prices in Keynesian
Perspective.
"Patinkin's Interpretation of Keynes and the Keynesian Cross", 1989, HOPE.
"Only in America: Neither The Homeless Nor The Yachtless Are Economic Problems", 1989, JPKE.
"The Economics of Ignorance Or Ignorance of Economics?", 1989, Critical Review
"Shackle and Keynes vs. Rational Expectations Theory on the Role of Time, Liquidity, and Financial Markets" 1990, in S. Frowen, editor,
Unkowledge and Choice in Economics
"Liquidity Proposals for a New Bretton Woods Plan", 1990, in Barrere, Keynesian Economic Policies.
"On Thirlwall's Law", 1990, Revista de Economia Politica
Collected Writings of Paul Davidson, 2 vols, 1990-1.
Controversies in Post Keynesian Economics, 1991.
" A Post Keynesian Positive Contribution To `Theory'", 1991, JPKE
"Is Probability Theory Relevant For Choice Under Uncertainty?: A Post Keynesian Perspective", 1991, JEP.
"What Kind of International Payments System Would Keynes Have Recommended for the Twenty-First Century?" 1991, in Davidson and
Kregel, editors, Economic Problems of the 1990s.
"Money: Cause or Effect? Exogenous or Endogenous?", 1992, in Nell and Semmler, editors, Nicholas Kaldor and Mainstream Economics
"Eichner's Approach to Money and Macroeconomics", 1992, in Milberg, editor, The Megacorp and Macrodynamics.
"Reforming The World's Money", 1992, JPKE.
"The Elephant and the Butterfly; or Hysteresis and Post Keynesian Economics", 1993, JPKE.
Says Law
Income = Spending on current goods
(consumption goods + investment goods)
Demand
Producible goods
Liquid assets
Non-producible
Non-substitutable
Demand
Producible goods
Liquid assets
Non-producible
Zero elasticity of production
Non-substitutable
Zero elasticity of substitution
Money matters
Neutrality of money changes in money supply only affects nominal variables
Cooperative economy
Entrepreneur economy
Production is organised
by entrepreneurs
Uncertainty
ergodic
There is a stable underlying structure, such
that we can develop theory that can be applied
time after time, consistently.
Non ergodic world
"Uncertainty" means that we simply do not
know what outcomes will occur
True Uncertainty
We live in a world of true uncertainty
I do not mean merely to distinguish what is known for certain from what is only probable
The game of roulette is not subject, in this sense to uncertainty The sense in which I am
using the term is that there is no scientific basis on which to form any calculable
probability whatever. We simply do not know (Keynes 1936)
Post Keynesians
Says law is broken
Money does matter in the short and long run
Involuntary unemployment is possible in the long run
Involuntary unemployment is not only caused by rigid wages
Favour fiscal policy directed at investment and infrastructure