... 1. Why did the neo-classical theory fail to explain the cause for Great depression? The neo classical theory of economics focuses on determining the prices, output and income distribution through supply and demand phenomenon occurring in the market. This theory proposed that even if one variable changed, i.e. supply or demand, the market would stabilize and attain an equilibrium state automatically, since the other variable adjusted itself to the changing conditions in the market. Under the supply demand scenario, the income constrained individuals would be concerned with maximization of utility and cost constrained firms employing available information and factors of production, with profit. During the great depression, the financial meltdown initiated by Wall Street in 1929 wiped out billions of dollars of assets. The wealthy American's who owned almost all of the nation's stocks were hit hard by an 80% decline in value of the stocks. This also caused a rampant failure in the banking systems, with two out of three banks which collapsed between 1929-1933. All of this was as a result of abundance of materials. The supply side was excess with labor, but not with enough firms to hire them, and goods but not enough money to buy them. This is where the neo-classical theory failed to explain the causes of the great depression, as to why did not the market automatically adjust itself to attain an equilibrium state. The failure in the neo-classical theory was explained by...
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...liberals departed from the ideas of classical liberalism? (45 marks) The two branches of modern liberalism and classical liberalism naturally clash within the ideology of liberalism itself. There are fundamental ideas that form criteria for debate across the two coexisting views, although they do possess various similarities with one another. Classical liberals often highlight the supreme importance of the individual, reflected in their desire to minimise the role of the state, whereas modern liberals take a more collective approach, and the see the expansion of the state as necessary based on the socio-economic circumstances of society. In this sense, modern liberalism can be viewed as a development on classical liberal thinking; it is only in the new ideas that modern liberalism brought about upon which they are fundamentally different. Modern liberalism can be viewed as taking a strong departure from classical liberalism based on their ideas of freedom. Firstly, classical liberals have believed in the idea of negative freedom, meaning non-interference or freedom from external interference of any sort; individuals should be left alone to make their own decisions. The government or state, external to the individual, should act as a ‘night watchman’, as summarized by the classical liberal John Locke, meaning its primary role should merely be to oversee society to keep law and order in place and the state in check. An extension of this classical view is the idea of a minimal state...
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...transformation from an agrarian to an industrial society. The word “economics” is derived from the Greek word “okionomia”, which means “household management “or “management of household affairs”. The study of economics became necessary because due to the fact that resources were scarce as well as limited and that not all human wants and desires can be met. How to distribute these resources in the most efficient and “equitable” way is a principal concern of economists. There are three (3) different branches of study in economics that depicts the word “History and Economics”, they are Economic History, History of Economics and The History of Economic Thought. Therefore the History of Economics can be defined as a science of the body of classified knowledge based upon the establishment of certain uniformity in economic life. The body of this work is divided broadly into two parts; * A brief history of economics as a discipline * Some historical positions regarding the history of economics, which include; Mercantilism, Physiocracy, Classicals, Neoclassicals, Marxism, Keynesians, Current theories, and the significance of studying the history of economics SECTION I A Brief History of Economics as a Discipline ANCIENT/PRECLASSICAL (384BC-1776) The study of the economy in western civilization began largely with the Greeks, particularly Aristotle and Xenophon. They concerned themselves with the theories of money, taxation, usury, property right, justice in economic exchange and the impact...
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...experience excess production, stock piling, down turn and periodic unemployment. Over time, the down turn would get worse. For labour, having a job or being unemployed made little difference. Marx believed that periodic recession and crisis of capitalism would lead to the self destruction of the system and its eventual downfall. He called on labour to revolt. ‘You have nothing to lose but your chains’ he said. His clarion call was ‘workers of the world unite’. It is an irony of history that Marx, a great philosopher, proved to be poor prophet, precisely because of his own advocacy. Had Marx not said what he did say, his prophecies would have come true. His ideas resulted in significant system reforms in Britain. Publication of Marx’s Communist Manifesto in 1948 put the British society and polity on guard. In 1850s British Parliament enacted a number of laws aimed at labour reforms. Trade Unions were recognized. Minimum wages were instituted. Limitations were prescribed on hours of work, on age of workers (banning child labour) and on employment conditions for women. The dooms day forecast of Marx did not materialize. Even when a Communist State came in to being in 1917, it was in the predominantly agricultural and backward Russia. Economists still failed to register the natural imbalance between demand for and supply of goods and services in the country and hence for labour....
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...stress the importance of macro-economics, post neo-classical endogenous growth theory and the symbiotic relationships between growth and investment, and people and infrastructure”. (Brown) As we have seen here in the past few years, but more so in the last year, the economy is ever changing. Macroeconomics is the backbone of America and without a stable economy we have serious hurdles in front of us to overcome. John Maynard Keynes developed the Keynesian Theory, which has become the foundation of our government’s economic decisions. During the course of this paper I will outline Keynesian Theorists and Monetary Theorists approach to promote long-run macroeconomic stability, the impact of persistent budget deficits on the trade deficit, options available to policy makers when national savings presents opportunity to improve the trade deficit, appraise the position of the supply side as it relates to government deficits and evaluate recent national economic policies as they relate to the magnitude of the trade deficit. In essence, the inner workings and use of macroeconomics as a financial tool of study to determine how a national economy is managed and sustained. To begin, Keynesian theorists approach to promote long-run macroeconomic stability is somewhat unique. Economist who agree with Keynes’ theories believe that we live in the short run, that what occurs in the short run does not mean it will occur in the long run. Keynes’ stated, “In the long run, we are all dead”. Obviously...
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...supply and demand is very important particularly vital to the government while determining economic policy. Factors like unemployment, expectations, consumer income, and interest rates all have an affect on the aggregate supply and demand. These factors will be discussed from both the Keynesian and Classical macroeconomic perspective. Current State of Unemployment, Expectations, Consumer Income, and Interest Rates Unemployment The unemployment rate has been steadily dropping over time. As of the summer of 2012 the unemployment rate was at 8-1/4 percent, and fell to a little below 8 percent as of January 2013 (Board of Governors of the Federal Reserve System, 2013). However, this improvement is still well above unemployment rates pre-recession. Also, a larger portion of the unemployed have been so for six months or longer (Board of Governors of the Federal Reserve System, 2013). In more recent months according to "Bureau Of Labor Statistics" (2013), “the unemployment rate edged down to 7.4 percent as of July 2013” (News Release USDL-13-1527 ). Economists try to interpret this information in order to better determine which way government policy should go. According economist, John C. Williams, President of the Federal Reserve, San Francisco, the primary reason for high unemployment percentages is due to lack of demand in our economy, (Williams, 2013). Furthermore his report, The Economy and Fed Policy: Follow the Demand, go on to indicate more spending is necessary to...
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...ATTY. DANILO S. AZANA Professor 1st Semester, 2011-2012 CONTENTS Chapter 1 Introduction Chapter 2 Political, Social And Economic Theories Of Development I. Political Theorists A. John Locke: The Labor Theory Of Value B. Jean-Jacques Rousseau: The Social Contract C. Jeremy Bentham: The Greatest Good II. Economic Theorists A. Aristotle B. Plato C. Xenophon D. Thomas Aquinas E. Nicolo Machiavelli F. Jean Bodin G. Antonio Serra H. Thomas Mun I. Physiocrats J. Merchantilists K. Adam Smith L. W.W. Rostow M. Thomas Malthus N. David Ricardo O. Karl Marx P. Jean Sismondi Q. Friedrich List R. Henry Charles Carey S. Henry George T. John Maynard Keynes U. Joseph Schumpeter V. Friedrich Hayek W. John Kenneth Galbraith Chapter 3 Summary, Conclusion and Sources Although the idea of a natural or just price or wage is very noble, prices in reality are subjective. As a human I agree. I mean in the ideal world it would be nice if a fair days work for a fair days pay. Further a fair price based on, I do not know what, something fair and just. But the reality is different. Prices and wages in the real world not the Platonic world are determined subjectively, by supply and demand. That is something in the market is worth exactly what someone will pay for it. Aristotle influenced economic thought because he formulated a coherent idea about the development and uses of money. He...
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...Most of the countries tried to reestablish the gold standard after World War I, but it had been totally collapsed during the Great Depression in 1930s. Some economists said comply with the gold standard had prohibited monetary authorities from increasing the money supply rapidly enough to recover the economies. Therefore, the representatives of most of the world's leading nations met at Bretton Woods, New Hampshire, in 1944 to create a new international monetary system. The representatives had decided to link the world currencies to the dollar since the United States accounted for over half of the world's manufacturing capacity and held most of the world's gold during that time. At the final, they agreed should be convertible into gold at $35 per ounce. What is Bretton Woods System? The Bretton Woods system is often refer to the international monetary regime that prevailed from the end of World War II until 1971. The origin of the name is from the site of the 1944 conference that had created the International Monetary Fund (IMF) and World Bank. According to the history, the Bretton Woods system was the first example of a fully negotiated monetary order intended to govern currency relations among sovereign states. In principle, the regime was designed to combine binding legal obligations with multilateral decision-making conducted through an international organization -- the IMF, endowed with limited supranational authority. In practice the initial scheme, as well as its subsequent...
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.... The Great Depression was a period of unprecedented decline in economic activity. It is generally agreed to have occurred between 1929 and 1939. Although parts of the economy had begun to recover by 1936, high unemployment persisted until the Second World War. Background To Great Depression: * The 1920s witnessed an economic boom in the US (typified by Ford Motor cars, which made a car within the grasp of ordinary workers for the first time). Industrial output expanded very rapidly. * Sales were often promoted through buying on credit. However, by early 1929, the steam had gone out of the economy and output was beginning to fall. * The stock market had boomed to record levels. Price to earning ratios were above historical averages. * The US Agricultural sector had been in recession for many more years * The UK economy had been experiencing deflation and high unemployment for much of the 1920s. This was mainly due to the cost of the first world war and attempting to rejoin the Gold standard at a pre world war 1 rate. This meant Sterling was overvalued causing lower exports and slower growth. The US tried to help the UK stay in the gold standard. That meant inflating the US economy, which contributed to the credit boom of the 1920s. Causes of Great Depression Stock Market Crash of October 1929 During September and October a few firms posted disappointing results causing share prices to fall. On October 28th (Black Monday), the decline in prices turned...
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...RAMOS, ROCELLE GRACE A. BSIE 2-1 The History of Economic Thought and Development Economics E conomic writings date from earlier Mesopotamian, Greek, Roman, Indian subcontinent, Chinese, Persian, and Arab civilizations. Notable writers from antiquity through to the 14th century include Aristotle, Xenophon, Chanakya (also known as Kautilya), Qin Shi Huang, Thomas Aquinas, and Ibn Khaldun. The works of Aristotle had a profound influence on Aquinas, who in turn influenced the late scholastics of the 14th to 17th centuries. Joseph Schumpeter described the latter as "coming nearer than any other group to being the 'founders' of scientific economics" as to monetary, interest, and value theory within a natural-law perspective. Two groups, later called 'mercantilists' and 'physiocrats', more directly influenced the subsequent development of the subject. Both groups were associated with the rise of economic nationalism and modern capitalism in Europe. Mercantilism was an economic doctrine that flourished from the 16th to 18th century in a prolific pamphlet literature, whether of merchants or statesmen. It held that a nation's wealth depended on its accumulation of gold and silver. Nations without access to mines could obtain gold and silver from trade only by selling goods abroad and restricting imports other than of gold and silver. The doctrine called for importing cheap raw materials to be used in manufacturing goods, which could be exported, and for state regulation...
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...Schools of Economic Thought By: Lenore E. Hawkins To be able to invest successfully, one must understand the major schools of economic thought and how they impact national and global economies. I like to break economic theory down into seven schools of thought: fascism, neoclassical economics, socialism, Keynesianism, monetarism, Austrianism, and supply-side economics. Economic theory is really just a set of beliefs concerning individual and group behavior. There is no consensus about which model is correct, but the one most used by governments is Keynesianism. Schools primarily teach neoclassical with a Keynesian slant, which is sometimes referred to as the neoclassical synthesis. The following is a very high level overview of these different schools of thought. Keep in mind as you read these that since the study of economics is a soft science these theories don t have perfectly clear definitions with uniform consensus and tend to evolve over time. They are a bit like religion, where for example Lutheran, Episcopalian, Protestant, and Catholic all are variations of Christianity. Since we aren t talking about something objective like E=MC2, these definition are of course subject to my interpretation. The oldest model is fascism which contends that all truth is just a matter of opinion thus we cannot really know anything useful. With this base premise, governments are free to do whatever they deem necessary. There are no limits. The most...
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...New Burma sees no conflict between religious values and economic progress. Spiritual health and material well-being are not enemies: they art natural allies." Or: "We can blend successfully the religious and spiritual values of our heritage with the benefits of modern technology." Or: "We Burmans have a sacred duty to conform both our dreams and our acts to our faith. This we shall ever do." All the same, such countries invariably assume that they can model their economic development plans in accordance with modern economics, and they call upon modern economists from so-called advanced countries to advise them, to formulate the policies to be pursued, and to construct the grand design for development, the Five-Year Plan or whatever it may be called. No one seems to think that a Buddhist way of life would call for Buddhist economics just as the modern materialist way of life has brought forth modern economics. Economists themselves, like most specialists, normally suffer from a kind of metaphysical blindness, assuming that theirs is a science of absolute and invariable truths, without any pre-suppositions. Some go as far as to claim that economic laws are as free from 'metaphysics' or 'values' as the law of gravitation. We need not, however, get involved in arguments of methodology. Instead, let us take some fundamentals and see what they look like when viewed by a modern economist and a Buddhist economist. There is universal agreement that the fundamental source of wealth is human...
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...DEVELOPMENT OF CONCEPTS OF CAPITAL AND INCOME IN FINANCIAL REPORTING IN THE NINETEENTH CENTURY Calculation, Context and Consequence THOMAS REGINALD (Tom) ROWLES B.Ec (Hons), Dip.Ed (Monash) A THESIS SUBMITED FOR THE DEGREE OF DOCTOR OF PHILOSOPHY IN THE SCHOOL OF ACCOUNTING AND LAW OF RMIT UNIVERSITY, MELBOURNE, VICTORIA, AUSTRALIA ii DECLARATION I certify that: Except where due acknowledgement has been made, this thesis is mine alone; and The work has not been submitted previously, in whole or part, to qualify for any other academic award; and The content of the thesis is the result of work that has been carried out since the official commencement date of the approved research programme. THOMAS R. ROWLES iii TABLE OF CONTENTS Chapter Introduction 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9 Introduction Purpose of the Study Sombart’s Hypothesis An Alternative Model; Entrepreneurial Decision-making Context: The Industrial Revolution and ‘Profit’ The Changing Nature of ‘Investment’ The Great Depression of 1873-96 Intellectual Introspection Irving Fisher and the Conception of Capital and Income 17 17 17 23 25 26 30 32 34 34 35 36 38 38 38 39 43 46 49 50 51 54 55 1.10 Research Issues Identified 1.11 Summary Derivation of Research Issues 2.1 2.2 Introduction Evidence from Extant Accounts 2.2.1 Fixed Assets in Mercantile Accounting 2.2.2 The East India Company 2.2.3 Fixed Assets and Early Industrial Accounting 2.2.4 Capital Asset Accounting After 1870...
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...7/7/2014 Evernote Export Modern Welfare Criteria Created: 5/22/2012 9:12 PM General Equilibrium and Perfect Competition General Equilibrium of Exchange and Consumption 1. We assume that there is no production and the economy is a pure exchange economy. There are 2 individuals and 2 goods, who will exhaust the goods together. Naturally they will consume until (MRS x,y )A = (MRS x,y )B. But we don't know beforehand what will be the exact equilibrium. But if we know the initial distribution, we can define the boundary within which the equilibrium solution will lie. 2. Thus the initial distribution of goods and their relative bargaining strengths will determine the equilibrium position. This general equilibrium determines not only the final distribution of goods but also the rates of exchange or relative prices. Note that however, we can't determine absolute prices from here, we can only determine relative prices. Show that in PC, General Equilibrium can exist 1. This ca be shown using the fact that under PC, relative prices which A is facing will be same as relative prices which B is facing and hence MRS x,y for both will be same. General Equilibrium of Production 1. We assume that all labor is homogenous, receives equal wages, total quantity of each factor (L and K) is fixed, the production function is continuous and twice differentiable and the technology is given which together with factor endowments limits the production possibilities. Naturally the equilibrium condition...
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...us. These processes reconcile the need for creative and critical thinking because both are useful in forming a genuine understanding of the objective world, our relationship to each other and the actual knowledge process used for both. Therefore the question arises for college students which kind of thinking may be prioritized over the other when trying to make sound, valid and “true” claims. As a college learner I understand the process of generating knowledge to occur in both an individual and communal context, therefore different perspectives have to be assessed to arrive at objective truth. When assessing the need for interaction between critical and creative thought in generating knowledge, different perspectives arrive at different answers. For example, one common conception of critical thinking puts it above creative thinking in fundamental ways, asserting that creative thinking is secondary to critical. Another perspective holds that creative thinking sustains any other kind of philosophizing, because this mode of thinking brings into creation the very systems of thought used in the others kinds of philosophizing. I would argue that neither perspective has any monopoly on wisdom on this issue, and that laying down the assumptions needed to make either claim requires a very rigid definition of critical and creative thinking. Once these definitions are opened up, it may be possible to arrive at an understanding of what ways of thinking make use of critical and creative thought...
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