Question

In: Economics

4) list the main thrusts of the new Keynesians thought. 5) explain why formal and implicit...

4) list the main thrusts of the new Keynesians thought.

5) explain why formal and implicit contracts lead to and increase in unemployment according to new Keynesian school and how government should intervene actively through fiscal and monetary policies to counter this problem.

Solutions

Expert Solution

4) Keynesian economics is a theory that says government should increase demand to increase the growth.Keynesian believes consumer demand is the primary driving in an economy.As a result the theory supports expansionary fiscal policy.Its main tools on government spending are on infrastructure, unemployment,

The main thrust of Keynesian theory is that

a) velocity of circulation is constant.  

b)full employment of resources is the natural state of free economy.

Keynes believed that velocity of circulation was volatile and there often existed underemployment of resources due to recessionary conditions in economy.

5) The difference in unemployment is attributable to differences in how labor markets function under explicit and implicit contract enforcement. When third party contract enforcement is not feasible, firms generate implicit performance incentives by paying strictly positive rents to their workers, and employing a policy of contingent contract renewal. In such relational contracts, high-performing workers are rewarded by being re-employed and earning positive rents in future periods; shirking workers are punished through dismissal

Contractual incompleteness leads to a stable coexistence of different job types. After an initial phase in which we observe a trend towards job rationing in the IC treatment, a plateau is reached such that unemployment stabilizes at a high level, and a relatively constant fraction of firms continues to operate without rationing job offers.

To overcome unemplyment government can use following methods

a) Monetary policy: Cutting interest rates to cut the aggregate demand.

b) Fiscal policy:Cutting taxes to boost aggregate demand.


Related Solutions

Using one of the schools of thought we’ve discussed in class (Keynesian/ New Keynesians, Monetarism, New...
Using one of the schools of thought we’ve discussed in class (Keynesian/ New Keynesians, Monetarism, New Classical, RBCT, ABCT) discuss the merits of rule-based vs. discretionary fiscal and monetary policy with regard to stabilizing the macroeconomy. Be sure to include the assumptions made by the school of thought you use in your answer.
There are five (5) main types of warehousing. List and explain them.
There are five (5) main types of warehousing. List and explain them.
Explain why the Neoclassical school of thought is considered the birth of a new school of...
Explain why the Neoclassical school of thought is considered the birth of a new school of economic thought and what is new compared to the classical school?
5. List and explain 4 reasons why the first welfare theorem might not hold in practice.
5. List and explain 4 reasons why the first welfare theorem might not hold in practice.
Explain the concepts of Implicit contracts. Why do employers prefer to have implicit contracts? What is...
Explain the concepts of Implicit contracts. Why do employers prefer to have implicit contracts? What is the impact of implicit contracts on the unemployment rate?
4. List and explain the factors that cause a change in supply. 5. Explain with the...
4. List and explain the factors that cause a change in supply. 5. Explain with the use of examples: consumer surplus, producer surplus, price ceiling and price floor.
Molecule 2. Number of valence electrons 3. Lewis structure 4. Molecular Shape 5. Formal Charge (list...
Molecule 2. Number of valence electrons 3. Lewis structure 4. Molecular Shape 5. Formal Charge (list for each element) 6. Polar molecule? Yes/No 7. Resonance? Yes/No CH4 CH2Cl2 - CH4O H2O   H3O+ HF N2 NH3 C2H4 C2H2 C2H2Br2 C2H6     SO42-          NO3- CO2 SCN-    CO32-     HNO3
Explain the process of aerobic cellular respiration. List all steps, main reactants, and main products. Why...
Explain the process of aerobic cellular respiration. List all steps, main reactants, and main products. Why would an organism perform go through the Citric Acid Cycle and Electron Transport Chain/Chemiosmosis instead of solely performing Glycolysis?
List and briefly explain the 4 main elements we use in Marketing to carry out a...
List and briefly explain the 4 main elements we use in Marketing to carry out a Market Segmentation
explain what annex SL is futhermore, list and explain at least 4 high level main clauses...
explain what annex SL is futhermore, list and explain at least 4 high level main clauses and how they may be applied in an ISO 9001 audit. answer in detail.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT