until the great depression of the
nineteen thirties most economists' going
back to Adam Smith have believed that a
market system would ensure full
employment at the economy's resources
except for temporary short-term
upheavals if they were deviations they
would be self-correcting I slump in
output and employment would reduce
prices which would increase consumer
spending this in turn would lower wages
which would increase employment again
and it would lower interest rates which
would expand investment spending days
loss attributed to the French economist
GB say in the early 1800's summarized
view in a few words supply creates its
own demand says law is easiest to
understand the terms of barter a
woodworker produces furniture in order
to trade for other needed products and
services all of the products will be
traded for something or else there would
be no need to make them does supply
creates its own demand the Great
Depression of nineteen thirties
worldwide the GDP fell by forty percent
the united states and the unemployment
rate rose to nearly 25% where most
families had only one breadwinner the
depressions seem to refute the classical
idea tomorrow
markets would be self-correcting and
would provide full employment so in 1936
John Maynard Keynes and his general
theory of employment interest and money
provided an alternative to classical
theory which helped explain periods of
recession not all income is always spent
contrary to sous la producers may
respond to unsold inventories by
reducing output output rather than
cutting prices by recession or
depression could follow this decline in
employment and incomes the modern
aggregate expenditures model is based on
Keynesian economics or the ideas that
have arisen from kings and his followers
since it is based on the idea that
savings and investment decisions may not
be coordinated and prices and wages are
not very flexible downward internal
market forces can therefore cause
depressions
and government should play an active
role in stabilizing the economy in 2008
and 2009 the federal government use
Keynesian economics to try to end the
recession the idea was to increase
aggregate expenditures eliminate the
recessionary expenditure gap and bring
the economy to fool GDP is included tax
rebate checks and a seven hundred and
eighty seven billion dollar stimulus
package many argue that it didn't work
and so probably want to know why those
who argue that it didn't work so that it
didn't do enough and they are services
that consumers didn't respond to the
stimulus as well as hoped
consumers put more income into savings
and repay their debt now classical
economics economist didn't think in
terms of debt credit cards didn't have a
chain on the economy back in in addition
the effect of monetary policy is often
exaggerated there's argue that seven
hundred and eighty seven billion dollars
was too weak a half a pill does more
damage than help part of this is because
we're not producing at the same level as
we were in the nineteen thirties a
stimulus package in the nineteen
thirties was more effective because to
50% of our economy was in manufacturing
in today's economy it's only twelve
percent so the effects are going to be
different
