The Orthodox Keynesian School
For the early post-war years the central distinguishing beliefs within the
orthodox Keynesian school can be listed as follows:
1. The economy is inherently unstable and is subject to erratic shocks.
These shocks are attributed primarily to changes in the marginal efficiency
of investment following a change in the state of business confidence, or
what Keynes referred to as a change in investors’ ‘animal spirits’ (see
Chapter 2, section 2.8).
2. Left to its own devices the economy can take a long time to return to the
neighbourhood of full employment after being subjected to some disturbance;
that is, the economy is not rapidly self-equilibrating.
3. The aggregate level of output and employment is essentially determined
by aggregate demand and the authorities can intervene to influence the
level of aggregate ‘effective’ demand to ensure a more rapid return to full
employment.
4. In the conduct of stabilization policy, fiscal as opposed to monetary
policy is generally preferred as the effects of fiscal policy measures are
considered to be more direct, predictable and faster acting on aggregate
demand than those of monetary policy. These beliefs found expression in
the orthodox Keynesian model, known as the IS–LM model, to which we
now turn.
For the early post-war years the central distinguishing beliefs within the
orthodox Keynesian school can be listed as follows:
1. The economy is inherently unstable and is subject to erratic shocks.
These shocks are attributed primarily to changes in the marginal efficiency
of investment following a change in the state of business confidence, or
what Keynes referred to as a change in investors’ ‘animal spirits’ (see
Chapter 2, section 2.8).
2. Left to its own devices the economy can take a long time to return to the
neighbourhood of full employment after being subjected to some disturbance;
that is, the economy is not rapidly self-equilibrating.
3. The aggregate level of output and employment is essentially determined
by aggregate demand and the authorities can intervene to influence the
level of aggregate ‘effective’ demand to ensure a more rapid return to full
employment.
4. In the conduct of stabilization policy, fiscal as opposed to monetary
policy is generally preferred as the effects of fiscal policy measures are
considered to be more direct, predictable and faster acting on aggregate
demand than those of monetary policy. These beliefs found expression in
the orthodox Keynesian model, known as the IS–LM model, to which we
now turn.
No comments:
Post a Comment