POSC150 Lecture Notes - Lecture 29: Monetarism, Unemployment Benefits, Government Spending
30 Apr 2018
School
Department
Course
Professor
Fiscal (Tax) Policy
● Four Schools of Economic Thought
○ Laissez-Faire/Free Market Capitalism (Adam Smith)
■ Invisible Hand of the market
■ Economy flourishes without government interference
○ Keynesian Economics/Regulated Capitalism (John Keynes)
■ Spend during recession/save during expansion
■ Expanded government role
○ Monetarists (Milton Friedman)
■ Regulate supply of money to match rates of economic growth
■ Minimal government role - Government as Umpire
○ Supply-Side/Trickle-Down Economics (Ronald Reagan)
■ Reduce tax rate (especially for rich) benefits everyone
■ Reduce government regulations
● Keynesian Economics/Regulated Capitalism
○ Response to failures of free-market and great depression
○ Government involvement in economy can minimize gigantic booms and busts in
market
■ During a recession - government spends money
■ During a boom - government must cut spending
○ During recession
■ Unemployment insurance and other welfare measures provide people
with money to spend
■ Government spending on infrastructure or other projects provides
companies with money and people with jobs
■ More funding for education provides people with new skills
○ Manipulating interest rates
■ Raise interest during booms to cool spending
● Less loans, less production, less likely to have a “bubble” or
inflation
■ Lower interest during busts to increase spending
● More loans, more production
find more resources at oneclass.com
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Document Summary
Regulate supply of money to match rates of economic growth. Minimal government role - government as umpire. Reduce tax rate (especially for rich) benefits everyone. Response to failures of free-market and great depression. Government involvement in economy can minimize gigantic booms and busts in market. During a recession - government spends money. During a boom - government must cut spending. Unemployment insurance and other welfare measures provide people with money to spend. Government spending on infrastructure or other projects provides companies with money and people with jobs. More funding for education provides people with new skills. Raise interest during booms to cool spending. Less loans, less production, less likely to have a bubble or inflation. Lower interest during busts to increase spending. Response to stagflation of welfare state (keynes) High unemployment, high inflation, low economic growth. Argue that keynes was right about manipulating interest rates, but wrong about government spending. Rely on the federal reserve system to handle the economy.
