IN CONCLUSION: WEEK OF NOVEMBER 4th

Recap

This past week, you used the model of Aggregate Demand and Aggregate Supply (AD/AS) to analyze the effects on GDP, unemployment and the price level, particularly due to the Great Depression and the Great Recession. Hopefully, you were also able to use it to analyze the current economic situation globally and in the United States due to supply chain issues and global energy prices caused by COVID and the invasion of Ukraine. You were also introduced to the classical view of economics, as well as the Keynesian view.

The classical view dates back to the founding fathers of modern economics around the mid 1700's back in England. Those figures include Adam Smith, J.B. Say, David Ricardo and Malthus, to name a few.

The classical view on how economies operated seemed very logical, but clearly too simplistic, particularly in an ever-changing complex world of many exogenous economic variables.

The Great Depression was a pivotal point in global economic history as it signaled a departure from the classical view of how we envisioned economies to operate. Keynesian economics, while having many proponents and opponents, continues to be the mainstream view on economics, at least since the 1950s.

Looking Ahead

In the coming week, we will discuss the Neoclassical Perspective before we move on to two prescriptive policies used to correct for recessionary or inflationary gaps. In other words, when the economy is not in long-run equilibrium, rather than wait for it to heal itself (your view if you are a classical thinker), government policy in the form of fiscal stimulus could be a short-term solution. This short-term solution is called fiscal policy. It is symbolic of Keynesian economics which is to stimulate aggregate demand.