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The Evolution of Macro Economics in the UK - Assignment Example

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In the paper “The Evolution of Macro Economics in the UK” the author discusses the issue that after the failure of the UK economy in the World War II there was a lack of confidence towards the classical economic theory. Keynes introduced his own ideas that were greatly followed by the government of the UK…
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The Evolution of Macro Economics in the UK
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Download file to see previous pages According to Keynes the demand for the goods, in the long run, could be altered by the governments. The monetarists however argued otherwise. They criticized the long run and the short-run objectives of the Keynesian model because they argued that problems like the inflationary expectations could result. According to monetarists, the Keynesian model was based on a lot of assumptions. They also argues over the rules and the discretion stating that the governments and the banks could make rules but in order to achieve the long-run objectives, the implementation was compulsory. This discretion was not that likely practically. They argued that discretion was necessary instead of the rules.
Say’s law states that ‘the creation of one product immediately opens a vent for other products’. By this, Say wants to imply that the supply makes the demand for itself. This means that he argues that excess supply would result in the demand to increase too so that the demand is ‘created’ for the supply. Keynes, on the other hand, believed that demand did not change all of a sudden. Rather it had to be managed by some practices. He criticized the law stating that the UK economy had been demand deficient during the war. Keynes also stated that if Say’s Law was to be true, then during the war the demand should have been created for the excess supply. On the contrary, what really had happened was that the demand had been deficient during the war.
In the circular flow model, if the business sector does not produce anything, then the households do not earn any income. This is where Say’s law is reflected in the model. Keynes critique of this notion was that although the revenue earned by the production in the firms does end up as income for the households, this may not happen instantaneously. Households are likely to spend as much income as they have.
In the 1940s the main change that had occurred in Britain was the switch to a market economy. ...Download file to see next pages Read More
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