ILRLE 3440 Lecture Notes - Lecture 22: Business Cycle, John Maynard Keynes, Unemployment Benefits
8 May 2018
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24 April 2018
ECON 3300 - Lecture 22!
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Alfred Marshall on Say’s Law!
Basically the same thing!•
Everyone gets income which they can either consume or save so Y = C + S!•
Every dollar saved is invested so S = I and Y = C + I!•
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Won’t work if S > I!•
Agg D < Agg S!◦
People hoarding money or intermediary hoarding money!◦
Marshall says this won’t happen!
It is irrational to hoard money (when the interest rate is positive)!1.
Interest rates are flexible and are determined by investments and saving. This will allow the 2.
market to clear!
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Standard mode of operation is full employment, unless something has messed up the workings of •
the free market!
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From 1929 to WW2 unemployment rates in the US is upwards of 14%;!
In Britain it is not as bad, but their downturn starts in 1921 ending in 1938!
Average unemployment was 14%!•
These examples go against Say’s Law!
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Politicians adopted a passive response!
In both Britain and the US, the general belief was that the key to understanding business cycles •
was business confidence!
One way to restore this confidence is to maintain a balance budget and stay on the gold standard!•
Only one party advocated something else, the Liberal Party!•
Their leader was David Lloyd George!◦
In 1929, Lloyd George said he would lower unemployment to 5% by spending 125 million ◦
pounds a year for 3 years on public works!
Document Summary
Everyone gets income which they can either consume or save so y = c + s. Every dollar saved is invested so s = i and y = c + i. It is irrational to hoard money (when the interest rate is positive) Interest rates are exible and are determined by investments and saving. Standard mode of operation is full employment, unless something has messed up the workings of the free market. From 1929 to ww2 unemployment rates in the us is upwards of 14%; In britain it is not as bad, but their downturn starts in 1921 ending in 1938. In both britain and the us, the general belief was that the key to understanding business cycles was business con dence. One way to restore this con dence is to maintain a balance budget and stay on the gold standard. Only one party advocated something else, the liberal party.
