The essay focuses on the Marginality School of Neoclassical Economics' critique of post-Keynesian Economics (Arestis, 113). The idea explains how to achieve consistent economic growth using three driving forces: capital, labor, and technology. According to neoclassical theory, the state of equilibrium can be obtained by varying the amount of energy and money in the production function. Surprisingly, neoclassical theory is built on the assumption that wealth creation within the economy and the manner in which it occurs is critical for economic growth. Moreover, the production function of neoclassical theory denotes that the gross industrial product (GDP) Y=AF (K, L) where k represents capital L represent the amount of unskilled labor and A represent the determinate level of technology.
Similarly, the essay evaluates Hayek’s argument regarding the efficiency of the price system. According to Hayek’s price system is a communication network and as a critical contribution to social well –being. Moreover, he demonstrated price system as the system capability to transfer information from one portion of the market to another. On the contrary, Friedrich Hayek. Pointed out that prices contain information that resources are scarce and therefore individuals cannot consume everything they want. Interestingly, the aggregate demand is restrained by the market value, and it only signifies the total output at a given value level and does not represent the superiority of the living standards (Taylor 29).. In the long -run, any expansionary policy shifts the aggregate demand curve to the left. On the contrary, in the short term, the model of total demand predicts that the economy will eventually move towards its out. Moreover, in the long- run, the level of employment takes place when the real wage change so that the demanded quantity of labor equals the amount of work supplied.
Using our readings from Post Keynesian economics, provide a critique* of one of the other schools of economic thought**we have encountered this semester
Post-Keynesian theory are united by their disagreement with the neoclassical theory is unsatisfactory to offer an interpretation of what post-Keynesian relate to other non-orthodox approaches (Arestis, 113). Moreover, there is a remark that the combining feature of post-Keynesian economics is a dislike to the neoclassical economy and that the post-Keynesian economy distributed through the fundamental changes of growing a concerted critique of mainstream economics. I agree with P. Arestis that the reciting opposition did nothing to found the natural uniqueness of post-Keynesianism as a distinct school of thought making such declaration in the framework of the argument of the coherence of post-Keynesianism seek to indicate that post-Keynesian recite disapproval to neoclassical economic on a steady basis. Interestingly, P.Arestis points out that the primary objective of post-Keynesian economics is to provide a clear understanding of how the economy works by relating the analysis of economic to the real financial problem. I agree with this because, in according to the financial history of Keynes, he discussed more the total spending and its effect on output and inflation.
Similarly, the neoclassical economics preserved that the level of wages determine the amount of occupation and when unemployment take place employees provide themselves with a lower actual payment and go on till all are employed. Keynes points out that the wage bargain does not control the real salary where his disagreement dealt with the short period problems but relates to the full force of equilibrium challenges this (Arestis,113). Moreover, the capitalist wage bill and the wages received by workers are equal only to strictly one commodity. Further, according to neoclassical theory, the bargaining of the salaries is conducted regarding what an employee get and as a result determine the quantity of unemployment. Therefore, this is not true because the salary determines the commencement of the level of occupation cannot be articulated in a way that has a meaning.
Evaluate Hayek’s argument regarding the efficiency of the price system. What role does information play in his analysis?
The price system is an element of any economic scheme that uses a price articulated in any form of money for the assessment and circulation of goods and services and the dynamics of production. However, according to Hayek’s price system is a statement network and as a strategic contribution to social well –being. Moreover, he demonstrated price system as the system ability to transmit gen from one part of the market to another. On the contrary, Friedrich Hayek. Pointed out that prices contain information that resources are scarce and therefore individuals cannot consume everything they want. Hayek emphasized that, in an entirely, adjusted scheme of cost, one corresponds to attain equilibrium. While asserting that exact localized knowledge is crucial, to economic decision-making, Hayek recognized that he needed to know more than the immediate circumstances and he constructed an example to explain his points. In his argument, assumed that at any place of the world, there is a new opportunity for the use of raw material. In this case, demonstrated by using a tin where at one side assumed that the tin has risen and on the other hand, he concluded that, the source of the tin supply had been eliminated. He argued that it does not matter which of the two cause can make the tins scarce but what the employer of the tin need to know is that some of the tin they used to devour is more profitably elsewhere. Therefore, according to him, the significant thing about the price system is the economy of information within which it functions. Interestingly, Hayek acknowledges that the modification manufactured by the price system is not impeccable in the sense of general equilibrium theory, but they are a marvel of economic management. Similarly, price system does not arise as the product of human design and as a result, Hayek concluded that price system is the formation which man should learn how to use them. The role of information in Hayek analysis act as the knowledge that is dispersed in the minds of individuals through the operation of the markets combined with universal good.
What are the differences between the approaches regarding the implied role of aggregate demand and the effectiveness of fiscal and monetary policy in the short- and long-run?
Aggregate demand measures the average of all final goods and services manufactured in an economy and express them as the total quantity of money exchanged for those good and services (Taylor 29).. Interestingly, the aggregate demand is restrained by the value of the market, and it only signifies the entire production at a given price level and does not represent the superiority of the living standards. In the long -run, any expansionary policy shifts the aggregate demand curve to the left. On the contrary, in the short term, the classical of total demand forecast that the economy will ultimately move towards its output. Moreover, in the long- run, the level of occupation takes place when the real wage change so that the demanded quantity of labor equals the amount of work supplied. On the other hand, fiscal policy occurs when the government uses its expenditure and taxing power to have an impression in the economy. During this process, the direct and indirect economic policy can stimulate exchange rate, capital expenditure, and deficit level, which are usually associated with monetary policy.In the long run, the financial system boosts aggregate demand by reducing the rate of interest while fiscal policy increases the government spending and tax.
Compare the policy implications of the two versions of the Post Keynesian growth model discussed by Hein (2017) with the policy directives given in Friedman’s (1968) ``The Role of
Monetary Policy, the theory of Keynes, lead to a wholly different financial system where the construction of credit financed the growth through the constitutional banking system rather than relying on intercontinental capital markets (Taylor 29). In this case, this policy would aim to reduce the interest rate that Keynes saw as fundamental to a higher level of activities, stability, and employment. Interestingly the decrease in interest rate would influence production that will lower the cost of business, investments and government expenditure. Moreover, government spending should be complementary to the monetary policies. However, Keynes pointed out that financial actions alone are not sufficient for the full employment and that the government investment would make up the shortfall. Interesting the Keynes theory uses the policy of taxation for the redistribution of income. On the other hand, Friedman points on the monetary is a bit slippery because it is affected by differences in the combinations of the economy. Nevertheless, Friedman set the average interest rate at zero. According to him, the foregone cost of holding money
Faced by sequestered agents should equal to the social cost of producing extra fiat money. Interestingly, Friedman presumed that the marginal cost of generating additional cash should equal to zero and as a result making the reasonable interest rate zero.
Work cited
Arestis, Philip. "Post-Keynesian economics: towards coherence." Cambridge Journal of Economics 20.1 (1996): 111-135.
Taylor, John B. "Reassessing discretionary fiscal policy." The Journal of Economic Perspectives 14.3 (2000): 21-36.
