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60- Evolution of Macroeconomics | History of Economic thoughts | Macroeconomic Origin and theories - YouTube
Channel: Easy Learning Economics
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Hello friends, Welcome to Easy Learning Economics.
I am Dr. Kewal Ph.D. in Economics.
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Today, we are going to discuss a very important
topic
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that is the Evolution of Macroeconomics or
the brief sketch of
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economic theories From
Classical, Keynesian, Monetarist,
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New Keynesians, neo-classical, and new classical
school of thoughts.
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In this video, we shall discuss the various
concepts of classical, Keynesians, monetarist,
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new Keynesians, neo-classical, and new classical
schools of thought.
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Brief Sketch of Economic Ideas/ History of
Economic thoughts
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In this lecture, we shall learn that what
is the Classical School of Thought?
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what is the Keynesian School of Thought
what is the Monetarist Macroeconomists' opinion?
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what is the New Keynesian?
what is the Neo-Classical school of thought?
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what are the New- Classical Economists?
Summary
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So, we shall cover in this lecture each and
everything,
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what is the Classical School of Thought and
why are they called classical economists?
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They were of opinion in the eighteenth and
nineteenth
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centuries.
Classical economists focused on economic growth,
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economic freedom, laissez faire ideas and
free competition.
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Classical economists Include Karl Marx, weber,
Durkheim, Adam Smith, J.S Mill, and Simmel
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are pioneer thinkers and are foundational
theorists,
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they are classical because they are linked
with the process of modernization.
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Classical schools of thought are known as
supply-side economists. because they were
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of the opinion that whatever is produced,
nothing remains unsold.
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The market is always in equilibrium.
There is quick adjustment among wages, price,
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and interest
rate and there is a lesser role of the government.
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The market forces through economic freedom
and free competition play a strong role to
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attain employment in the economy, through
quick adjustment of wages, monetary values
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and interest rates.
During the great depression 1930 high rates
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of unemployment for several years affected
the world economies and doctrine of invisible
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the hand was seen as useless.
if
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we summarise, we can say that The classical
school of thought dominated till 1970. they
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believed that the market is always in equilibrium
and there is no unemployment and there is
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a quick adjustment between wages and price.
The Classical聽economic theory assumes that
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a
product's value is derived from the cost of
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materials plus the cost of labor.
Keynesian School of Thought
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Economists famous for consumption theories
Keynesian economists are John Law, Thomas
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Malthus, and the Birmingham School of Thomas
Attwood, and the American聽economists聽William
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Trufant Foster and Waddill Catchings, who
were influential in the 1920s and 1930s relating
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to Keynesianism.
Keynesian focuses on economic growth and price
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stability rather than full employment.
Adam smith was the one who defined economics
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in 1776 in his famous work inquiry into the
nature and causes of the wealth of Nation,
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for the first time in history that economics
is the study of the wealth of a nation.
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If, father of Economics is Adam smith the
the founding father of macroeconomics is John
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Maynard Keynes (1883-1946).
His most famous work, The General聽Theory聽of
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Employment, Interest, and Money, was published
in 1936. Keynesian was of opinion that government
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should
intervene in the time of crisis.
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Keynesian's main idea was that reduction in
aggregate demand is the primary cause of recession
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in the short-run period.
Wages and prices can be sticky and in an economic
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downturn unemployment can result.
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Macroeconomic became popular after the great
depression
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1929-1933.
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When Keynes identified the inflation and unemployment
in the economy lasting for several years.
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The classical school of thought were of opinion
that the market is always in equilibrium,
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whereas the Keynesians were one Who identified
disequilibrium in the market and identified
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unemployment and inflation during the great
depression period.
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they were of opinion that there is a slow
adjustment of wages and prices and interest
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rates.
Whereas the classical economists were of the
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opinion that there is a quick adjustment among
wages, price, and interest rates. this is
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the difference between the Keynesians and
classical.
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The government with expert fiscal policy can
enhance purchases by trimming the tax rates
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be able to enhance the demand for goods and
services and can solve the macroeconomic problems
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of unemployment and the business cycle that鈥檚
why Keynesian are also known as demand-side
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economists.
However, the supply-side economists are the
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classical school of thought they were of the
opinion that whatever is produced is sold,
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nothing remains unsold. while the Keynesians
are called demand-side economists because
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they said the government knows better through
fiscal policy can increase the demand and
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control unemployment.
The Keynesians macroeconomic theory dominated
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till 1970.
Monetarist Macroeconomists
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Economist in the 20th century the Famous聽monetarists聽include
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Milton Friedman, Alan Greenspan, and Margaret
Thatcher who contributed to the theory of
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monetarism.
Monetarists macroeconomists believed
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that the government step to increase purchases
by rising demand for goods and services would
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lead towards inflationary pressure in the
country and the economy would be weakened.
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Thus, they refuted the Keynesians notion.
According to monetarists the government administration
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by bringing changes and controlling the money
supply be capable to control inflation in
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the country.
The classical school of thought were of opinion
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that the market is always in equilibrium and
there is no unemployment. However, unemployment
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appeared in the great depression from 1929
- 1934. who identified it? unemployment was
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identified by Keynes. Keynes suggested that
a government through fiscal measures can control
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unemployment.
The monetarist against the Keynesians school
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of thought suggested that with the changes
in the fiscal policy, however, control can
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be possible on unemployment. with the decrease
in the tax rate and with an increase in demand
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the inflation increases. such inflation can
be controlled through the monetary policy
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by controlling the money supply.
Basically, this was the idea of the classical,
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Keynesians, and the monetarist.
New Keynesian
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New Keynesians were of opinion that households
and firms perform based on rational expectations.
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They were of opinion that even with changes
in demand and manufacturing costs the price
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billed for certain goods is reluctant to change
that may be due to company strategy or the
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cost to be incurred on updating the price
is so high.
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Therefore, the government knows, how to improve
macroeconomic circumstances in the course
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of fiscal and monetary policies.
New Keynesians replied to the monetarist,
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what they replied?
The monetarist said that inflationary pressure
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appears in the economy with fiscal measures,
but new Keynesians said that an increase in
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the price of certain goods is reluctant to
change because the cost of updating the price
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is so high and people perform on the basis
of rational expectation.
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then Neo-Classical Economists starts
Neoclassical economists suggested the marginal
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utility concept based on sane hopes
of all economic agents to operate.
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People calculate the marginal cost and marginal
benefit before taking any action.
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Neoclassical economists聽say that consumer
perceptions of the value of a product effect
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its price and demand.
The forces of supply and demand create market
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equilibrium.
However, the classical school of thought was
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of opinion that the value of a product depends
upon the cost of production and the amount
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of labor used to produce that product.
whereas, the neoclassical said that the consumer
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perception about the value of a product affects
its price and demand.
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So, they were of opinion like the classical
school of thought that the market is always
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in equilibrium., the macroeconomic center
of attention is on the expansion of supply
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factors and
the impact of money supply on price behavior.
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New- Classical Economists
The Robert Lucas (recipient of the Nobel Prize
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in 1995), Thomas Sargent, Neil Wallace, and
Edward Prescott聽belongs to the new classical
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school
of thought.
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They believe that to develop the
economy countries must liberalize the trade,
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encourage entrepreneurship, bring reforms
in labor markets to reduce the power of trade
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unions.
The new classical approach directs that that
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economy
can achieve the potential level of output
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by bringing changes in the long-run aggregate
supply rather than changes in the aggregate
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demand.
New classical support the monetarist and neoclassical
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school of thoughts that economic agents perform
based on the sensible expectations to maximize
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marginal utility, taking for granted that
the market is open all the time and voluntary
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unemployment exists and discretionary fiscal
the policy is deteriorating the economy and
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monetary
a policy helps to control rising prices.
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if we summarise, for the easy understanding
of all economic thoughts, we can say that
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Classical schools of thought believed
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that market is always in equilibrium, there
is a quick adjustment between wages, price
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and
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interest rate and there is a lesser role of
government.
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Classical聽economic theory assumes that a
product's value is derived from the cost of
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materials plus the cost of labor.
Keynesian are of the idea that there is a
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slow adjustment between wages and price.
The market is not always in equilibrium and
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there
is a major role of government.
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Reduction in aggregate demand is the primary
cause of recession in the short-run period.
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Monetarists were of opinion that the government
using monetary policy can control the inflationary
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pressure in the economy.
The new Keynesian said that people perform
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based on rational expectation.
And The government knows, how to improve macroeconomically
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circumstances in the course of fiscal and
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monetary policies.
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The neoclassical were of opinion that people
consider the marginal utility and compute
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the marginal cost and marginal benefit before
to perform.
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Neoclassical economists聽say that consumer
perceptions of the value of a product effect
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its price and demand. ... The forces of supply
and demand creates market equilibrium.
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The new classical supported the monetarist
and neo-classical economists. They were of
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the idea that fiscal policy deteriorates the
economy,
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whereas monetary policy helps to correct the
economy.
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The economy can achieve the potential level
of output by bringing changes in the long-run
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aggregate supply rather than changes in the
aggregate demand.
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So, this was a brief introduction to the evolution
of macroeconomics.
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I have tried my best to define all about the
evolution of macroeconomics.
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Please, let me know your feedback or any future
request in the comment box.
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