...Economics theories (Neo) Classical Theories 1. Introduction The term 'Classical' refers to work done by a group of economists in the 18th and 19th centuries. Much of this work was developing theories about the way markets and market economies work. Much of this work has subsequently been updated by modern economists and they are generally termed neo-classical economists, the word neo meaning 'new'. 2. Belief Classical economists were not renowned for being a happy, optimistic bunch of economists (in terms of their economic thinking!). Some believed that population growth would be too rapid for the resources available (Malthus was a particular exponent of this view). If this wasn't enough to depress the rate of long-term growth (and the rest of the population along with it!) then diminishing returns would cause further problems for growth. They believed that the government should not intervene to try to correct this as it would only make things worse and so the only way to encourage growth was to allow free trade and free markets. This approach is known as a 'laissez-faire' approach. Essentially this approach places total reliance on markets, and anything that prevent markets clearing properly should be done away with. Much of Adam Smith's early work was on this theme, and he introduced the notion of an invisible hand that guided economic activity and led to the optimum equilibrium. Many people see him as the founding father of modern economics. The Victorian period...
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...Contemporary Theories Summary of Solow model * Convergence because high returns to capital at low levels of capital * When capital stock is low, huge positive returns to capital but this is not true at very high levels of capital. * Less and less returns at high level of capital * Growth comes naturally from perfect competitive markets * There is no need to do anything. If you are on the left hand side of k*, the economy will grow. * True only for perfect competitive markets meaning * If needed human capital is available at any scale and quantity (no role for human capital in the Solow model though because we always divide everything by population) * There is a possibility of technology transfer * Government provides essential services * No need for development policy * Because again a country grows naturally if it’s on the left of k* and all countries converge to the same point But no evidence of convergence * Regressions: yes, but shaky * There was evidence of regressions, initial wealth was negatively related to GDP growth but we saw that the regressions were subject to many problems like OVB, reverse causality * Historical growth 1960-1990 * World: 1.7% (double after 43 years) * East Asia: 3.3% (double after 23 years) * South Asia: 1.9% (double after 38 years) * Sub-Saharan Africa: 0.2% (double after 348 years) Difference between OECD and rest of the world: * Convergence...
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...QCT 3 --6.7 points each for a total of 80 points Salvatore’s Chapter 6: a. Discussion Questions: 1,7, and 15 1: (a) What is forecasting? Why is it so important in the management of business firms and other enterprises? (b) What are the different types of forecasting? (c) How can the firm determine the most suitable forecasting method to use? a) Forecasting is used to try and predict the economic activity of a firm’s future. It aims to reduce risk/uncertainty that is faced in the short-term operational decision making. It is also used to plan for the firm’s long-term growth. Forecasting helps make decisions by using macroforecasts of the general economic activity as inputs for their microforecasts of the industry’s and firm’s demand and sales. Forecasting helps decide a firm’s marketing strategy, production needs, sales forecast, and helps predict financial needs such as cash flow, profits, and outside financing. Furthermore, it helps make personal based decisions, as well as assist for the long-term future of the firm (Salvatore, 2012). b) Forcasting types range from expensive to inexpensive, as well as simple to complex. Forecasting techniques can be qualitative, and others can be quantitative. Salvatore focuses on qualitative forecasts. These forecasts include: time-series, smoothing techniques (moving averages), barometric forecasts with leading indicators, econometric forecasts, and input-output forecasts. c) A firm...
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...An influential contributor to social theory, political theory, andpolitical economy, his conception of liberty justified the freedom of the individual in opposition to unlimited state control.[2] He was a proponent of utilitarianism, an ethical theory developed by Jeremy Bentham, although his conception of it was very different from Bentham's. Hoping to remedy the problems found in aninductive approach to science, such as confirmation bias, he clearly set forth the premises of falsification as the key component in the scientific method.[3] Mill was also a Member of Parliament and an important figure in liberal political philosophy. Alfred Marshall (1842 - 1924) Alfred Marshall was an Englishman and one of the most influential economists of his time. His book, Principles of Economics (1890), was the dominant economic textbook in England for many years. It brings the ideas of supply and demand, marginal utility and costs of production into a coherent whole. He is known as one of the founders of neoclassical economics. John Maynard Keynes (1883 – 1946) John Maynard Keynes, 1st Baron Keynes of Tilton was a British economist whose ideas, known as Keynesian economics, had a major impact on modern economic and political theory and on many governments' fiscal policies. Milton Friedman (1912 – 2006) Milton Friedman was an American economist and statistician at the University of Chicago, and recipient of the Nobel Memorial Prize in Economic Sciences. Among scholars, he is best known...
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...Some of the main critics to the Washington Consensus and its “neoliberal diagnosis” of development came from theorists of the so called “New institutionalists economics” (NIE). The key term “institutions” is used in different ways by different authors. However in general “institutions” are regarded as the “formal and informal sets of rules, norms and procedures of behavior” (Martinesseu, 253). NIE studies the economic phenomena in a wider social context and with different approaches (Martinesseu, 251) and its principal focus of analyses are the transaction costs. One of its main conception is that the more complex are the transaction, the higher will be the costs and consequently the higher will be the need for efficient institutional arrangements...
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...Applied Economic Theory United States Mortgage Crisis After rising at an annual rate of nearly 9 percent from 2000 through 2005, house prices have decelerated, even falling in some markets. At the same time, interest rates on both fixed- and adjustable-rate mortgage loans moved upward, reaching multi-year highs in mid-2006. Some subprime borrowers with ARMs, who may have counted on refinancing before their payments rose, may not have had enough home equity to qualify for a new loan given the sluggishness in house prices. In addition, some owners with little equity may have walked away from their properties, especially owner-investors who do not occupy the home and thus have little attachment to it beyond purely financial considerations. Regional economic problems have played a role as well; for example, some of the states with the highest delinquency and foreclosure rates are among those most hard-hit by job cuts in the auto industry. The rate of serious delinquencies--corresponding to mortgages in foreclosure or with payments ninety days or more overdue--rose sharply during 2006 and recently stood at about 11 percent, about double the recent low seen in mid-2005.3 The rate of serious delinquencies has also risen somewhat among some types of near-prime mortgages, although the rate in that category remains much lower than the rate in the subprime market. The rise in delinquencies has begun to show through to foreclosures. In the fourth quarter of 2006, about 310,000...
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...COLLEGE OF MANAGEMENT AND SOCIAL SCIENCES DEPARTMENT OF ECONOMICS DISCUSS THE VARIOUS ECONOMIC GROWTH THEORIES AND DEVELOPMENT THEORIES HOW CAN SUCH THEORIES BE USED IN ECONOMIC DEVELOPMENT IN NIGERIA. COURSE TITLE THEORY OF ECONOMIC DEVELOPMENT COURSE CODE;ECO 2911 INTRODUCTION According to Dennis Goulet in The Cruel Choice, “it matters little how much information we possess about development if we have not grasped its inner meaning”. Development is not purely an economic phenomenon. In an ultimate sense, it must encompass more than the material and financial sides of people’s lives, to expand human freedom. Every nation strives after development. Development and growth should therefore be perceived as a multidimensional process involving the reorganization and reorientation of the entire economic and social systems. The sources of economic progress can be traced to a variety of factors, but by and large, investments that improve the quality of existing physical and human resources, increase the quantity of these same productive resources, and raise the productivity of all or specific resources through invention , innovation and technological progress have been and will continue to be primary factors in stimulating economic growth in any society. ECONOMIC DEVELOPMENT THEORIES Definition of economic development It can be defined as the increase in the standard of living of a nation's population with sustained growth from a simple, low-income economy...
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...Game theory is a concept of decision making that considers more elements beyond just benefits minus costs. Specifically, it includes the interaction between participants. In economics, the theory attempts to predict the participants’ optimal decisions. It has found a core place in economic decision-making and policy-making for its inherent ability to predict reactions in resource allocation, business negotiation, and other economic aspects. Game theory is mostly associated with decision-theory and other contexts such as cooperation and negotiations. From its definition, it is evident that the game theory is largely used in the study of the human decision making processes. In psychology, its equivalent is known as the theory of social situations. In economics, however, game theory tends to focus on sets of outcomes known as equilibrium that represent the most rational solutions to each situation. Game theory emanates from the complexity of human interactions; thus, in a situation where an individual is dealing with an inanimate object such as a tree, he or she does not expect the tree to fight back or respond (Leyton-Brown and Shoham 51). The environment can also be considered neutral to what is done to the tree, at least in direct and rational response. In human interactions, however, each action by an actor emanates from a situation and elicits a response. Each actor must thus recognize how his of her interaction with other rational actors works so as to foster cooperation...
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...Visit the Virtual Economy Home page Keynesians - Introduction Keynesian economists are, not surprisingly, so named because they are advocates of the work of John Maynard Keynes (if only all economics was that easy!). Much of his work took place at the time of the Great Depression in the 1930s, and perhaps his best known work was the 'General Theory of Employment, Interest & Money' which was published in 1936. In this section we look more generally at the work of Keynesian economists. Follow the links below or at the foot of the page to find out more detail about what they believed in and the policies they proposed. * Beliefs * Theories * AS & AD * Policies * Virtual Economy policies Keynesians - Beliefs Keynes didn't agree with the Classical economists!! In fact the easiest way to look at Keynesian theory is to see the arguments he gave for Classical theory being wrong. In essence Keynes argued that markets would not automatically lead to full-employment equilibrium, but in fact the economy could settle in equilibrium at any level of unemployment. This meant that Classical policies of non-intervention would not work. The economy would need prodding if it was to head in the right direction, and this meant active intervention by the government to manage the level of demand. Follow the links in the navigation bar at the foot of the page or in the side panel to find out more detail on the sort of policies this may involve. Keynesian beliefs can...
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...THE ECONOMIC THEORIES OF MILTON FRIEDMAN The Economic Theories of Milton Friedman Milton Friedman was one of the top and most influential economists whose conservative economic theories became influential during the last part of the twentieth century. This paper will explore his economic theories and how his policies were embraced by some conservative politicians but are not as widely adopted today. Milton Friedman would famously say “there is no such thing as a free lunch” (Moore 2012). What he meant was that everything comes with an opportunity cost. If the government spends money then that money must come from the private economy. He was an advocate of capitalism and his views helped revive modern capitalism in the latter part of the twentieth century. He was a proponent of the free market economic system and was opposed to government interference in the economy. Many of his theories have become accepted and lauded by modern day conservative politicians. Milton Friedman was born in Brooklyn, NY in 1912 to immigrant parents. He was awarded a scholarship to Rutgers University where he majored in mathematics. While at Rutgers he became interested in economics due to the poor state of the economy during the Great Depression. After graduating from Rutgers University he went on to receive his master’s degree from the University of Chicago and then on to Columbia University for his doctoral work (Academy of Achievement...
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...more I want to continue to turn the pages and see what else he is going to speak about. Capra starts off Chapter 7 speaking of a subject matter that I have had interest in for quite some time…economics. Capra mentions that the ‘Cartesian framework is often quite inappropriate for the phenomena they are describing, and consequently their models have become increasingly unrealistic’ (1982, 188). Capra specifically mentions that this thought is quite prevalent in economics. I yearn to understand exactly where he is going with this thought, so I read on. I have always believed that the social sciences needed to blend their ideas and theories with economists and political scientists, sociology, and historians, as their basic forces are related to one another. From Academia to our government, this fragmentary approach needs to change as all need to combine all forces from each field to develop wider viewpoints. For instance, ‘Economists generally fail to recognize that the economy is generally one aspect of the whole ecological and social fabric; a living system composed of human beings in continual interaction with one another and with their natural resources, most of which are, in turn, living organisms’ (Capra 1982, 188). Isn’t that an amazing statement? I have always viewed economics in that way, but I could never come up with such a bold way to state the obvious!...
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...Fundamentals of Managerial Economic Theory Managerial economics is the science of directing scarce resources to manage cost effectively. It consists of three branches: competitive markets, market power, and imperfect markets. A market consists of buyers and sellers that communicate with each other for voluntary exchange. Whether a market is local or global, the same managerial economics apply. Managerial economics applies to Businesses (such as decisions in relation to customers including pricing and advertising; suppliers; competitors or the internal workings of the organization), nonprofit organizations, and households. The “old economy” and “new economy” in essentially the same way except for two distinctive aspects of the “new economy”: the importance of network effects and scale and scope economies.[1] i. network effects in demand – the benefit provided by a service depends on the total number of other users, e.g., when only one person had email, she had no one to communicate with, but with 100 mm users on line, the demand for Internet services mushroomed. ii. scale and scope economies – scaleability is the degree to which scale and scope of a business can be increased without a corresponding increase in costs, e.g., the information in Yahoo is eminently scaleable (the same information can serve 100 as well as 100 mm users) and to serve a larger number of users, Yahoo needs only increase the capacity of its computers and links. A seller with...
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...One of the consequences of the recent and continuing economic crisis is the emerging or strengthening of alternative actions and views, although not necessarily new. Some of these voices to some extent complementary, derived mainly from research institutions and activist groups in Western Europe, expressed through a new concept of lifestyle, the one of degrowth. Degrowth is the (new) revolutionary theory which claim to alleviate the negative consequences of the current “economic” system and to create a new, sustainable and “friendly world”. Degrowth theory claims that as a development and growth causes political, economic and environmental crises, does not constitute as part of the solution for the global challenges but part of the problem....
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...To what extent, is the success of Australia's Fiscal policy, based on the changes of the current federal budget, viable for a stronger economy? This essay aims to illustrate, the success of Australia’s fiscal policy implemented by the current federal budget and its effects for the long-run. In relation, do these strategies provide sufficient evidence that ensures Australia’s “position of strength in the world economy” and if they are considerably better, in comparison to other international economic environments? I will focus primarily on the government’s expenditure on investment to boost the economy and the resulting effect it has towards the productivity, innovation and competition for Australia. The 2013-14 Budget, which illustrates a reduction in taxes of about $ 17 billion and an increase in expenditures of $ 24 billion, is strongly coherent, increasing aggregate demand by about 3 per cent. This process of fiscal expansion has been possible given the low Australian government debt that allows restoring an even budget by 2015 – 2016. There are several fiscal challenges directed to the 2013 Federal Budget. One particular Domestic challenge involves the importance on maintaining fiscal and monetary policy alignment. The previous federal budget 2012-13 fails to preserve alignment between fiscal and monetary policy. As a contractive fiscal policy lead to a decreasing aggregate demand by about 2%, the Reserve bank was cutting interest rates to stimulate demand. Thus, it is...
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...PRIVATIZATION OF EDUCATION AND THE 6-3-3-4 EDUCATIONAL SYSTEM IN NIGERIA: A CRITICAL (RE)ASSESSMENT By: Paul-Sewa Thovoethin, Department of Political Studies, University of the Western Cape, Private Bag X17, Bellville 7535 Cape Town, South Africa. E-Mail:3168726@uwc.ac.za Or paulsewanu@yahoo.com Phone: +27788580086, Or +2348037258409 Being a Paper Presented at the Open Society Initiative for Southern Africa Organized Conference on Globalization, Regionalization and Privatization in and of Education in Africa, Held at Crowne Plaza Hotel, Johannesburg, South Africa, from 12 th-13th October, 2012 1 Abstract With the dire need for technological development occasioned by the need to move with the trend of globalization the Nigerian government in early 1980 introduced what is now popular referred to as the 6-3-3-4 educational system. Under this system a student is expected to spend six years for primary education, three years for junior secondary education, three years for senior secondary education and four years for tertiary education. The focus of this policy is to build technical capacities of students right from their secondary school level which will prepare them for engaging more in engineering and technological related courses in higher institution. To achieve this, the government was expected to equip secondary schools with modern technological equipments, so that the first three years of students in Junior secondary is concentrated in the teachings of technological related...
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