The political cartoon in this video explains both macro and microeconomics and the application of Keynesian Theory. The political cartoon applied different visuals to present the arguments of classical economic theory and the application and emergence of the Keynesian Theory of economics. The cartoon illustrates classical economics showing the effects of price, aggregate demand, and aggregate long-term supply and how they affect the real GDP. The political cartoon used drawings and graphical manipulation to show how the economic variables mentioned above would affect long-run economics. The arguments from the classical models are challenged by Keynesian Theory, especially in the cases of short-run economic downturns. The classical economics theory might be critical in determining the long-run economy, which might not be impactful in emergency situations.
The cartoon also explains the Smithian Theory and its impacts on the economy. It acknowledges that the economy is driven by the decisions of different macro and micro players. Smithian Theory understands human behaviors (rationality) can direct the decision to share the scarce resources in the economy. Another factor considered in the arguments of Smithian Theory is simplified philosophical decision-making linked to the mathematics of economics and how human behavior could lead to assumptions impacting conclusive economics. Three theories are effectively discussed, showing the connection between people working for self-interests, competition, and conditions that meet the demand in the economy.
The Keynesian theory explains the simple economics of moments of stress and the expectation when there is a short-term effect on aggregate demand and supply. According to the video, the total spending in the economy significantly impacts inflation, employment, and the expected output, considering how one player in the economy affects the whole operations, thus leading to a change in the actual demand and supply curve. Changes in demand and supply affect the real GDP, and therefore outward forces of the economy, like policymakers and government, try to control the change leading to a series of unexpected changes.
The discussion flows with the Keynesian Theory and how government policies are put in place, especially during the times of the great depression, trying to pull up the economy. In these short-run sticky prices and changes in policies, different variables arise, as shown in the video leading to unexpected changes in the flow of the economy. The challenge posed by the Keynesian Theory on the classical theory of economics is depicted, and the variations of variables changes are explained. It is very informative as the explanations are also displayed, showing the expectation in the economy after every alteration in demand and supply.
From classical economics, the argument argued in Smithian theory quote of the impacts different economic players play in leading the process of an output and price equilibrium by engaging in their self-interest activities and therefore, the Keynesian Theory proves that the distress in the economy counters the theory. The Keynesian theory thinks differently of the economy, as presented in the cartoon, showing what could happen to the economy in times of crisis. From the arguments, Keynesian Theory disagrees with the natural flow of economics to a state of equilibrium and advocates for fiscal policies that, in turn, shape the economy’s direction by altering its driver variables. The examples mentioned as fiscal policies include the reduction of taxes and increased spending by the government, possibly increasing consumer demand.