ECON 202 - PRINCIPLES OF ECONOMICS:

MACROECONOMICS
Phil Martinez



Outline of Macroeconomic Theories

Mid 1700s
Classical Theory

Supply determines the state of the economy.

Smith :  Costs => Supply  =>  Price =>  Demand

Say’s Law :  Supply calls forth its own Demand


                               1800s
Early Critiques of Classical Theory

Recurrent problems appear to be chronic & generated by
the market itself.

Malthus :  Depressions, poverty & unemployment are too
chronic to be simply adjustments to equlibrium.

Marx: (Crisis Theory)   -  Capitalism is prone to generating ever-increasing internal crises that it cannot resolve, e.g.  Depressions, chronic under-employment,  & instability.

Institutionalism (Early 1900s): Historical, political,
social institutions influence & constrain market activities
and forces.


1930
Keynesian Theory

Explicitly rejects Classical Macro Theory.

The market is most often not in equilibrium and often
produces sub-optimal equilibriums.

Demand (total spending) determines the state of the economy.

Government should use Fiscal policy to stabilize the
business cycle.



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