OVERVIEW: WEEK OF NOVEMBER 4th & 11th

Topic

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Prior to Exam #2, you reviewed aggregate demand and aggregate supply (AD/AS). The AD/AS model is useful in helping us understand how changes in the real world affect the macroeconomy through changes in GDP, unemployment and the price level. In other words, it introduced you to the business cycle.

This week, you will use the AD-AS model to study the causes and affects of two particularly severe and infamous economic contractions. Given the events of the last three years, namely, COVID and its aftermath on the global economy, you should use it to evaluate the current business cycle.

You will also get an overview of the major debates surrounding macroeconomics and how they relate to the two contractions, again in the context of aggregate demand and aggregate supply.

You will be introduced to the Classical view and Keynesian views of the macroeconomy. The former is based on the philosophy pertaining to how economy's of industrialized nations functioned from the time of Adam Smith in the late 18th century to the Great Depression of 1929. The latter, or Keynesian, arose as a direct challenge to the former as a result of the Great Depression.

You will learn about Keynes' views on wages, prices and interest rates, particularly during the Great Depression. In addition, you will learn about Keynes' assertions regarding consumption. His view on consumption will have us examining such topics as the average propensity to consume (APC), the marginal propensity to consume (MPC), the marginal propensity to save (MPS) and the spending multiplier.

The videos provided in this week's module will be very important in delivering the difference between Keynesian and the Classical view.

Objectives

By the end of this week, you will be able to:

  • Identify Say's Law
  • Articulate the classical approach of the wage-price spiral.
  • Differentiate between Classical and Keynesian Economics.
  • Student will be able to compare and contrast various macro-economic theories of output, employment, and income
  • Discuss Keynes' view on wages, prices and interest rates during the Great Depression
  • Articulate Keynes' assertions on consumption and savings
  • Compute the marginal propensity to consume and the marginal propensity to save.

Weekly Schedule

Due date Activity

Read Textbook through Chapter 12 & Appendix B: Expenditure-Output Model & Chapter 13
Relevant Study Guide #3 Questions
Sunday, 11/10 Due: Quiz #8