Ashley Tadyton
ACC 225
Keynesian versus Classical Theory: Why Money May Affect the Level of Output
As seen in Chapter 6, according to the Classical Theory, monetary policy has no effects
on the level of real economic variables (such as output, consumption
Ashley Tadyton
ACC 225
The Asian Currency Crisis of 1997
We will consider next the economic and currency crisis in Asia in 1997-98. We will try
to understand the causes of the currency crisis in light of what we have learned in the
previous parts. The Tab
Ashley Tadyton
ACC 225
Inflation is always and everywhere a fiscal phenomenon."
Note that whenever a central bank prints "fresh money" it can obtain goods and services
in exchange for these new pieces of paper. The amount of goods and services that the
go
Ashley Tadyton
ACC 225
Application: Friedman's Money Growth Rule
The quantity theory was the basis (or a big part of it) for one of the sharpest policy
debates in the postwar period. Then, as now, there were many businessmen, economists,
and government of
Ashley Tadyton
ACC 225
Open Market Operations
We'll go into this in greater depth later on, but for now let me give a quick overview of
how governments get money into the system. One way, as we've seen, is to print money
to finance government deficits. If
Ashley Tadyton
ACC 225
The Quantity Theory of Money
We're going to start here with some pure reasoning that goes back a few hundred years.
Like a lot of good theory, it's based on an analogy. As a start, you should ask yourself
what the effect of a two-fo
Ashley Tadyton
ACC 225
Application: Bolivian Stabilization
Bolivia in the mid-1980s suffered from rates of inflation in excess of 1000 percent per
year. On the advice of Jeffrey Sachs of Harvard, they adopted one of the cleanest
examples of an orthodox st
Ashley Tadyton
ACC 225
Application: The 1981-2 Recession
If you were older, you might recall the 1981-2 recession, the deepest recession of the
postwar period. This recession was unusual in a number of respects. For one thing, it
coincided with extremely
Ashley Tadyton
ACC 225
Demand-Side Equilibrium
The equilibrium in the Keynesian model consists of intersecting the IS and LM curves, as
in Figure 15. Points of intersection are combinations of r and Y (Y' and r' in the figure)
such that we have equilibriu
Ashley Tadyton
ACC 225
Demand-Side Equilibrium
The equilibrium in the Keynesian model consists of intersecting the IS and LM curves, as
in Figure 15. Points of intersection are combinations of r and Y (Y' and r' in the figure)
such that we have equilibriu
Ashley Tadyton
ACC 225
The effect of an increase in government spending
Let's see how a change in the exogenous government spending G leads to a shift to the
right of the entire IS curve: intuitively, a higher G will spur the economy and shift the IS
curv
Ashley Tadyton
ACC 225
Saving and Investment Once More (The IS Curve)
You'll recall that one of the components of the Classical model is a relation between
saving and investment:
S= Sp(r,Y-T) - (G-T) = Sp +Sg = I(r) + CA
where Sp is saving by households (
Hypothesized difference
Level of significance
0
0.05
Population 1
Sample size
Sample mean
Sample standard deviation
Sample size
Sample mean
Sample standard deviation
Population sample 1
population sample 2
total degrees of freedom
pooled variance
standard