Mindblown: a blog about philosophy.
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The Role of Banks
Learning Objectives By the end of this section, you will be able to: Somebody once asked the late bank robber named Willie Sutton why he robbed banks. He answered: “That’s where the money is.” While this may have been true at one time, from the perspective of modern economists, Sutton is both right and wrong.…
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Measuring Money: Currency, M1, and M2
Learning Objectives By the end of this section, you will be able to: Cash in your pocket certainly serves as money; however, what about checks or credit cards? Are they money, too? Rather than trying to state a single way of measuring money, economists offer broader definitions of money based on liquidity. Liquidity refers to how quickly…
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Defining Money by Its Functions
Learning Objectives By the end of this section, you will be able to: Money for the sake of money is not an end in itself. You cannot eat dollar bills or wear your bank account. Ultimately, the usefulness of money rests in exchanging it for goods or services. As the American writer and humorist Ambrose…
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Introduction to Money and Banking
Figure 14.1 Cowrie Shell or Money? Is this an image of a cowrie shell or money? The answer is: Both. For centuries, people used the extremely durable cowrie shell as a medium of exchange in various parts of the world. (Credit: modification of “Cowry Shell (Cypraeidae)” by Silke Baron/Flickr Creative Commons, CC BY 2.0) Chapter Objectives In this…
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Summary
13.1 The Building Blocks of Neoclassical Analysis The neoclassical perspective argues that, in the long run, the economy will adjust back to its potential GDP level of output through flexible price levels. Thus, the neoclassical perspective views the long-run AS curve as vertical. A rational expectations perspective argues that people have excellent information about economic events…
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Balancing Keynesian and Neoclassical Models
Learning Objectives By the end of this section, you will be able to: We can compare finding the balance between Keynesian and Neoclassical models to the challenge of riding two horses simultaneously. When a circus performer stands on two horses, with a foot on each one, much of the excitement for the viewer lies in…
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The Building Blocks of Neoclassical Analysis
Learning Objectives By the end of this section, you will be able to: The neoclassical perspective on macroeconomics holds that, in the long run, the economy will fluctuate around its potential GDP and its natural rate of unemployment. This chapter begins with two building blocks of neoclassical economics: (1) potential GDP determines the economy’s size and (2)…
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Introduction to the Neoclassical Perspective
Figure 13.1 Impact of the Great Recession We can see the impact of the Great Recession in many areas of the economy that impact our daily lives. One of the most visible signs was in the housing market where many people were forced to abandon their homes and other buildings, including ones midway through construction. (Credit: modification of…
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Summary
12.1 Aggregate Demand in Keynesian Analysis Aggregate demand is the sum of four components: consumption, investment, government spending, and net exports. Consumption will change for a number of reasons, including movements in income, taxes, expectations about future income, and changes in wealth levels. Investment will change in response to its expected profitability, which in turn is…
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The Keynesian Perspective on Market Forces
Learning Objectives By the end of this section, you will be able to: Ever since the birth of Keynesian economics in the 1930s, controversy has simmered over the extent to which government should play an active role in managing the economy. In the aftermath of the human devastation and misery of the Great Depression, many…
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