201C8ol - Chapter 8 - THE BUSINESS CYCLE -How stable is a...

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-How stable is a market-driven economy? -What forces cause instability? -What, if anything, can the government do to promote steady economic growth? -Business cycle (T-35): Alternating periods of economic growth and contraction; they vary in: -length (how long) -frequency (how often) -intensity (how deep) -Classical theory: the economy “self-adjusts” to deviations from its long-term trend -the cornerstones were flexible prices and flexible wages -Say’s Law: Supply creates its own demand -John Maynard Keynes (Keynesian Theory) said “BS” to all the classical economists; the Great Depression proved this did not “self-adjust” -Keynes felt a market-driven economy was inherently unstable; when problems surface we need ‘government intervention’ to help out or a depression could return; we need the government to “prime the pump” (buy more output, hire more people, provide more income transfers, make more money available) in sluggish times -World War II ended the Great Depression by increasing the demand for goods
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This note was uploaded on 02/22/2011 for the course ECON 201 taught by Professor Hickman during the Spring '11 term at Frederick Community College.

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201C8ol - Chapter 8 - THE BUSINESS CYCLE -How stable is a...

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