Posted: September 16th, 2017

The Big Picture

Introduction to Macro-Economics: The Big Picture

The Two Branches of Macro-Economic Theory
Thinking like a Macro-Economist:
John Maynard Keynes and Milton Friedman
The United States is a capitalistic economic system but other have and currently do exist. Below is an amusing look at some comparative economic systems:
Feudalism: You have two cows that your feudal landlord owns. Your landlord takes some of the milk and lets you have the rest.
Communism: You have two cows. Your neighbors help to take care of them and the government tells you how much milk you can produce. You all share the milk.
Dictatorial control: You have two cows. The government takes them both, denies they ever existed, then drafts you into the army. Milk is banned.
Capitalism: You have two cows. You sell one and use the proceeds to buy a bull. Your herd multiplies, you sell them, and then retire.
Macro-economics is perhaps the most divisive area of economics when applied to political decision making, and macro-economists divide themselves into different schools of thought. Two of the biggest camps are the Keynesians and the Monetarists. Keynesians and post-Keynesians follow the theories of John Maynard Keynes, the most-celebrated economist of the 20th century who proposed that government stabilize the economy with the use of fiscal policy. Monetarists, on the other hand, follow the teachings of Friedrich Hayek. For this assignment do some research on the ideas of Keynes and Hayek. Focus on the “big picture” of what their main ideas are and how they have influenced policy makers. Then write a 3 to 4-page paper addressing the following questions:
Please repeat the case questions below on the title page of your paper.
1. Compare and contrast what policies Keynes and Hayek advocated regarding how the federal government should manage the economy. (Note: There is no need to include biographical information about their lives)
2. Explain one real-world event that counters the theories of each of the following: Classical, New Classical, Keynesian, New Keynesian, and Monetarist.
3. Explain one real-world event that supports the theories of each of the following: Classical, New Classical, Keynesian, New Keynesian, and Monetarist.
4. You have learned that Keynes and Friedman sharply differed on some basic ideas of how the Federal government should conduct economic policy. Which of the two economists do you agree with more, and explain why.

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