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Questions and Answers
Which school of thought emphasizes the role of market forces and the control of prices?
Which group acknowledges the importance of sticky prices and wages leading to unemployment?
Who challenges neoclassical economics by emphasizing institutions, power relations, and uncertainty in the economy?
According to monetarists, what is the primary tool for managing the economy?
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Which group aims to reconcile the Keynesian vision with mainstream microfoundations?
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Which of the following best describes the new classical economists' view on government interventions?
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Who recognizes the importance of government intervention and macroprudential regulation in addressing economic instability?
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What is the primary critique of Keynesian economics by monetarists?
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Which school of thought represents divergent interpretations of Keynes' legacy proposing different economic analysis approaches?
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Which of the following schools of economic thought emerged after Keynes and incorporates elements of rational expectations?
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According to new classical economists, what is the relationship between markets and unemployment?
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Which of the following schools of economic thought emerged after Keynes and emphasizes the control of the money supply?
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Study Notes
Economic Thought After Keynes
John Maynard Keynes' work during the Great Depression marked the beginning of a significant shift in economic thought, moving beyond the classical approach that emphasized laissez-faire policies. His theories laid the foundation for several schools of economic thought that emerged in the following decades, including monetarism, new classical economics, new Keynesian economics, and post-Keynesian economics.
Monetarism
Monetarism, founded by Milton Friedman, is a theory that emphasizes the control of the money supply as the primary tool to manage the economy. According to monetarist economists, changes in the money supply directly impact inflation and can be used to fight inflation.
Friedman's critique of Keynesian economics centered around the belief that governments should not attempt to fine-tune the economy by managing fiscal policy. Instead, they should focus on controlling the money supply to keep inflation in check and ensure economic stability.
New Classical Economics
New classical economists build on the classical economic tradition, incorporating elements of rational expectations and market clearing mechanisms. They argue that markets always clear, meaning there is no involuntary unemployment. Government interventions, according to them, may actually worsen economic conditions and be ineffective in stabilizing the economy.
New Keynesian Economics
New Keynesian economists aim to reconcile the Keynesian vision of the economy with the mainstream microfoundations that later dominated macroeconomics. They emphasize the importance of sticky prices and wages, which allows for the existence of unemployment without fully acknowledging the underlying mechanics of Keynes' original contributions.
Post-Keynesian Economics
Post-Keynesian economists seek to further develop and expand upon Keynes' original ideas. They challenge the fundamental tenets of neoclassical economics, emphasizing the role of institutions, power relations, and uncertainty in the economy.
These four schools of thought represent divergent interpretations of Keynes' legacy, each proposing different approaches to economic analysis and policy making. While monetarist and new classical economists emphasize the role of market forces and the control of prices, new Keynesians and post-Keynesians recognize the importance of government intervention and macroprudential regulation in addressing economic instability.
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Description
Explore the evolution of economic thought after John Maynard Keynes, including monetarism, new classical economics, new Keynesian economics, and post-Keynesian economics. Learn about the different approaches to economic analysis and policy making that emerged in response to Keynes' work.
