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Economic Issues: The Keynesian Theory Places Essay (Critical Writing)

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Updated: Mar 21st, 2020

Economics is a social science that focuses on relationships between individuals, businesses, countries, and continents in terms of how the resources are being used in order to meet the wants of humans. This subject can be divided into two major categories, in particular, macroeconomics and microeconomics.

The first one is a study of the aggregate nature of the economy and can be related to the factors that affect the economy as a whole. Microeconomics is a study covering the economic factors that influence people and nations on a more individual level. This paper will focus on the macro part of the field, and make use of the Keynesian theory models.

The Keynesian theory places a lot of emphasis on the forthcoming of total spending into the economy and its repercussion on the output, whether negative or positive. Its major dogmas stipulate that the private and public sectors make the economy change in the aggregate demand which will have either an anticipated or unanticipated effect on the real output and employment. The theory models also show that nominal amounts like wages, respond slowly to change in demand and supply, leading to periodical shortages and surpluses.

There is no certain ideology behind unemployment, as it is subject to both aggregate demand and price fluctuation. The theories advocate for stabilization policy to control business cycles. Nevertheless, some of the Keynesians believe in combating unemployment rather than fluctuation in the contemporary economy.

Regularly, the higher the cost, the higher the prices, and in case it costs more to manufacture a product than sell it, then there is not enough output for the employer to hold an organization and pay salary to the workers. It is possible to decrease the price which will lead to more spending and the total number of goods sold will be much higher.

Steve Fazzari advises to take a close look at the problem and establish all the details. Even the facts and forecasts that were provided by the Obama administration were greatly underestimating the unemployment rate, as it was higher than 10%. Bush administration decided that it would be rather giving checks than cut the rates.

The financial outcomes were seen later with a lasting negative effect. Increase in the disposable income of citizens improves their bargaining power that will, in turn, raise the demand of the commodities via the limited supply. It is also a problem of the inability to look deeper into the situation and predict or prevent.

Instead, the economy can be judged only by the final result and only then, something can be adjusted. Fazzari calls economists “historians” or researches, as the only way to construct the future economy is by analyzing previous mistakes and possibilities.

Steve also clarifies that it would be better to rely on the governmental allocation of resources and economy support because if people are given more money and opportunities, they will not be able to input resources into the economy properly, as spending will be chaotic and disorganized, instead of towards a particularly needed structure.

Supremacy, which is undesirable, arises when there is no competition. This is a position that gives a sense of self-assurance. In the business world, it is called a monopoly. The negative side is that one supplier can overtake one kind of technology or production and thus, determine the prices and output. This leads to a negative lack of competition, as the supplier does not need to make the product of high quality since no one can offer a better one.

Nowadays, monopolies have a negative rapport because of the lagging tendency. They control the demand and supply and hence drive the economy either uphill or downhill. Nonetheless, we cannot have perfect competition, as the curve will usually favor either the demand side or the supply side. For this case, it has to focus more on the aggregate demand side, as it injects more funds into the economy increasing the investments and eventually the whole economy.

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IvyPanda. (2020, March 21). Economic Issues: The Keynesian Theory Places. Retrieved from https://ivypanda.com/essays/economic-issues-the-keynesian-theory-places/

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1. IvyPanda. "Economic Issues: The Keynesian Theory Places." March 21, 2020. https://ivypanda.com/essays/economic-issues-the-keynesian-theory-places/.


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IvyPanda. "Economic Issues: The Keynesian Theory Places." March 21, 2020. https://ivypanda.com/essays/economic-issues-the-keynesian-theory-places/.

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IvyPanda. 2020. "Economic Issues: The Keynesian Theory Places." March 21, 2020. https://ivypanda.com/essays/economic-issues-the-keynesian-theory-places/.

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IvyPanda. (2020) 'Economic Issues: The Keynesian Theory Places'. 21 March.

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