A teacher passes out an individual assignment to his students. Some students immediately understand the assignment and are able to complete the work while

many more students are clearly struggling.

The teacher has two options: 1. Stop the class, give additional direction, and help

lead students through the lesson.

or

2. Allow the students to continue to struggle until they get it and tell them it’s homework if they do not finish

on time.

Choose one option. Explain, in detail, why you chose

this option. Explain yourself in at least four sentences.

Response Question 11/4/13

Foundations of Modern Economic

Theory

Defining Recession and Depression

Recession: a decline in real (adjusted for inflation) GDP two straight months.

Depression: A much broader, deeper and more

sever recession.

Example: during the Great Depression in the 30’s GDP dropped 33 percent and unemployment up to 25% in the biggest recessions of the 1900’s from 1973-75 GDP dropped 3% and unemployment to

9%

Classical Economics

Based off off the belief from the 1700’s that

markets right themselves if left alone (Adam Smith)

Also the belief, called Say’s Law: that supply

creates it’s own demand.

Savings are a good in that they help prepare for the

future.

Background on The Great Depression Prior to the Great

Depression things were “good”, people had

money (credit) and there was little regulation.

The stock market crash and subsequent depression

changed this, people lost savings, homes, jobs, GDP

dropped dramatically.

The people needed an alternative to the way the

economy had been working.

Keynes Steps in John Maynard Keynes was a

British economist who felt that it was the governments

responsibility to take control of the economy during the

Depression. The markets could not right themselves, they needed

intervention through government spending and

regulation.

The masses of unemployed and starving during the

depression liked this idea, as did FDR who put it into

action.

What did Keynes say?

Opposite of Say’s Law, that Demand creates Supply

Savings should be spent to stimulate the economy

The economy can be controlled

Government should go use deficit spending (debt) to create

jobs and create demand

During bad times pump more money into the economy, bail

out businesses

X= Demand

Influences of Keynes

New Deal Programs

Expanded powers of the Federal Reserve Bank which regulates

money and interest rates

Great Society Programs

Who is Frederick A. Hayak?F.A. Hayak was an Austrian economist but

immigrated to England who would further and solidify Classical theory.

He felt the market was too complex to control, government control of interest would lead to false capital and a “Boom and Bust Cycle”

The debate

He and Keynes battled directly during the 30’s and 40’s until

Keynes death. But the government stuck with Keynes

model.

Who is Ayn Rand?

What are her ideas?

Why are they becoming more popular now?

Ayn Rand

Why do her ideas go against “American

Ideals?”

F.A. HyakWhat was his book “The

Road to Serfdom” about?

What things created a new interest in Hyak

and “The Road to Serfdom”?

Why is Hyak being embraced by

Conservative politicians these days? why would

this concern Hyak himself?