Unit 3 Schools of Economics

3 schools of Economics-

Classical school: 

Key Individuals: Adam Smith, John B. Sey, David Ricardo, and Alfred Marshall.
 

They say Competition is good. Invisible hand means market runs itself. No Government intervention. Says Law says that supply creates its own demand. The economy is always close to or at full employment. In the long run the economy will balance at full employment. Triple down effect helps the rich first then everyone else. Savings is a leakage and investment is an injection. Savings increase with interest rate. Prices and wages are flexible downward.  AS determines the output. AS equals AD at full equilibrium. 

Keynesian school:

Key Individuals: John Maynard Caynes, Congress.

John says AD is Key not AS, demand creates its own supply, competition is flawed. Savings does not equal investment. Savings are invert to savings rate. Leaks and savings causes constant recession. Ratchet effects ans sticky wages block says law. The economy is not always close to or at full employment. Use fiscal policy. Will add stabilization. Use expansionary and contractionary. 

Monetary school: 

Key Individuals: Allen, Ben Bernanke. 

Congress can't time the policy options. Voters won't allow contractionary options. Easy money and tight money. Change the required reserves if needed. Buy or sell bonds through open market operations. Use the interest rate to change the discount rate and federal fund rate.