Posted: December 9th, 2022
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Discussion of the WeekOne practical limitation with Keynesian economics is the challenge of implementing active economic policy quickly. One practical limitation of the Classical or Neoclassical model is that it suggests allowing the economy to self-correct in the long run, but recessions may last a very long time.
For each challenge (limitation), discuss how severe you think these problems are? Explain, and provide an example.
Your discussion should be at least 250 words in length, but not more than 500 words. Cite your work and provide references at the end. Once you’ve completed your initial post.
Refer to the UoPeople APA Tutorials in the LRC for help in APA citations.
Learning Guide Unit 5
Learning Guide Unit 5
Watch: What is Neoclassical Economics?
Similar to the original classical theory, the neoclassical theory postulates that an economy would always self-adjust to equilibrium. It builds on classical theories by specifying that an equilibrium would be reached rather quickly because producers and consumers are rational, and any adjustments would be almost instantaneous. Because it is believed that recessions are just a blip, and would quickly self-correct, the emphasis here is on long-term growth and reducing the natural (long-term) rate of unemployment, rather than on fighting recessions and reducing cyclical unemployment. Because the focus is on the long run, the aggregate supply (AS) and Phillips curves are assumed to be always vertical.
Chapter 13: The Neoclassical Perspective
ReferencesBrad Cartwright. (2020, Sept 19). What is neoclassical economics? | Explained | New IB economics syllabus | IB microeconomics [Video]. YouTube.
Geenlaw, S., & Shapiro, D. (2017). The neoclassic perspective. In Principals of macroeconomics 2e. Openstax. https://openstax.org/details/books/principles-macroeconomics-2e
Functions of Money
Watch: How Banks Create Money Out of Thin Air
This Unit also defines money and explains its functions as a medium of exchange, store of value, a unit of account, and a means of deferred payment. Money that has intrinsic value (value on its own), like gold and silver, is referred to as commodity money. If it only has value because it is a government tender then it is referred to as fiat money. The physical amount of money in an economy is controlled by that nation’s central bank. In the US it is the Federal Reserve System, commonly referred to as the Fed. The amount of money that exists in an economy is represented by the sum of the total amount of currency, deposits, and travelers’ checks and is quite different from the physical amount of money due to the number of loans issued by banks.
Chapter 14: Money and Banks
ReferencesGeenlaw, S., & Shapiro, D. (2017). Money and banks. In Principals of macroeconomics 2e. Openstax. https://openstax.org/details/books/principles-macroeconomics-2e
Daniels, J. (2021, June 18). How Banks Create Money Out of Thin Air – How Money Is Created – Fractional Reserve – FED, Central [Video]. YouTube.
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