1) How would a Keynesian and Classical economist differ in their view of government spending and aggregate demand and aggregate supply? — schopenhauer1
2) I have a premise: Inflation is due to micro-decisions of greed on the part of the supplier to maximize as much profit as possible without pricing themselves out of the market. — schopenhauer1
I'm not sure what you are asking here. Are you asking about distribution of taxation or social welfare? — Shawn
Inflation, classically is defined as an overabundance of money to every individual in the market, creating an inflation in prices. — Shawn
Nope.2) I have a premise: Inflation is due to micro-decisions of greed on the part of the supplier to maximize as much profit as possible without pricing themselves out of the market. — schopenhauer1
1) Keynesianism takes the view that the government can curb economic downturns by public sector replacing the falling aggregate demand in an economic recession. Classical economics simply takes the view that there has the economy simply has to get back to it's balance by the market mechanism and this implies that we have that economic downturn. After it the economy is far healthier. Keynesian economics means that the government tries to manage the economic downturns and hence easy the depth of an economic recession or a depression. — ssu
Nope.
Inflation, the rise of prices, basically happens because when money loses it's value. If something is high in demand and the supply cannot meet up with it, that is normal market mechanism at work when the prices rise. Inflation is a monetary phenomenon. Asset inflation is a bit different, but has the same mechanism behind it. — ssu
So yes, that is what inflation is, but it is not quite the cause of inflation. It's a necessary condition, but not sufficient. Something else besides more money, creates inflation. My theory was that because there is more money, suppliers anticipate this, or they see behaviors (like people being able to buy more), and then they see they can maximize more profit and increase their prices. — schopenhauer1
Sounds Marxist. I'm sorry; but, modern day economics is based on rationality. To say that greed dictates the evaluation of prices or even price gauging (which is abhorred in economics) sounds fruity. — Shawn
Um, what do you call it when someone raises prices on a customer because he can make a better buck, yet still has plenty for a good standard of living? — schopenhauer1
Even so, take the greed part out.. my point was describing WHAT causes the raise in prices. — schopenhauer1
If you want, it is simply the supplier increasing prices based on a perceived rise in demand. — schopenhauer1
A monopoly? — Shawn
Essentially, a market failure or lack of competition in neoclassical economics. — Shawn
Yeah, that can be true. — Shawn
No that's not a monopoly, that is increasing prices. Any business owner can do that. — schopenhauer1
No you can have any type of company raise prices if they perceive a higher demand. — schopenhauer1
In a market, where there is competition in contrast to a monopoly that dominates the market segment it exists in, there's can't be arbitrary rises in prices for goods provided by said rational agent. — Shawn
All the companies would raise their prices.. — schopenhauer1
this is why I said micro-decisions affect the whole thing.. all companies will eventually raise prices with increase raise in demand.. this will affect yet other companies downstream who will need to raise prices due to increased costs, and on and on. — schopenhauer1
Perfect knowledge would allow that, which leaves two things as possible, either a conspiracy or an event outside the realm of market supply or demand. — Shawn
Well, there's an implicit assumption made here. Let me elucidate.It's not perfect knowledge.. — schopenhauer1
If all people started buying goods with such new disposable income, then, yes, there would be a rise in prices.If you give people $1200 and they spend it on consumer goods.. those companies start perceiving an increase in demand. — schopenhauer1
They do a calculation to see if they would make more money raising prices because they know people are buying more. They raise it enough to make more money without losing too much business.. The profit increases marginally the prices raise marginally, you have inflation. — schopenhauer1
Who does the calculation? Again, you're assuming the invisible hand is all knowing, which is a common misconception of economics. — Shawn
Well, that would be true if an event in the market caused a uniform rise in prices. Such events are extremely rare, or a collusion between market suppliers is complete.
But, then again, look at the increase in prices in N95 masks due to something unforeseen as Coronavirus. — Shawn
Keynesian theory is always looking for where things don't actually clear.. sticky wages, uneven inflation, etc. This is where governments can step in to promote this.. it is more demand side economics, not supply side. — schopenhauer1
Keynesian economics assumes that prices are elastic. I'm not sure where you're getting the notion that prices are inelastic. Even the prices for core goods are elastic. Again, you'd require something really extreme of an event to cause a uniform rise in (core) goods, where competition is rife. — Shawn
What you might or as it seems to me, getting at, is a collusion in the market. Is that so? — Shawn
Classical economics was before Keynes and Keynes himself wasn't so much against classical economics, with the exception of being against Say's law. I think that today many economic schools are against Keynesianism and governments taking on debt, but these are contemporary schools of economic thought. Many in the Austrian school for example don't like Keynes, as you might know.. So why would government spending be bad in classical economics? They think it will cause inflation and worse-off results. Keynesians would say that it does not necessarily cause inflation as it can only target certain sectors and not all at the same time. — schopenhauer1
Well, I may be here so "old-school" that what you explained still sounds like normal market mechanism working. You can call it demand-pull inflation (or cost-push inflation), but I wouldn't use those terms as it confuses a bit the terms in general. As if anything raising the prices is inflation and anything lowering the prices is deflation. If there's an exceptionally good harvest or a catastrophic harvest failure, I wouldn't call the price decreases or increases a sign of deflation or inflation. But of course you can use the economic terms demand-pull and cost-push inflation.However, there is also demand-pull inflation which causes inflation from government spending (causing debt). - What does raise prices is suppliers anticipating this increase in supply and/or seeing demand rise, and realizing they can make more money by increasing prices. — schopenhauer1
Well, I may be here so "old-school" that what you explained still sounds like normal market mechanism working. You can call it demand-pull inflation (or cost-push inflation), but I wouldn't use those terms as it confuses a bit the terms in general. As if anything raising the prices is inflation and anything lowering the prices is deflation. If there's an exceptionally good harvest or a catastrophic harvest failure, I wouldn't call the price decreases or increases a sign of deflation or inflation. But of course you can use the economic terms demand-pull and cost-push inflation. — ssu
Actually ordinary people are the last one's in the line.WHY does more money injected cause inflation? Because people will buy more. — schopenhauer1
And when they go after those natural resources etc. that cannot be simply printed more, then market mechanism kicks in and prices rise. This in turn makes things then more costly. — ssu
Finally the workers notice that their wages aren't keeping up with the prices of goods and they demand a raise, if they are in the position to do so. And once those wages go up, the central bank can then accuse the workers of creating inflation because of their excessive wage demands! — ssu
And you are correct that more money injected to the economy doesn't always cause inflation. In the last financial crisis the banks simply used that money to prop up their holdings. And who would take a loan in a time when the natural thing would be to save and be parsimonious? If you are worried that you might loose your job or have lost your job, the last thing people usually do is go and spend more than before. — ssu
Ok schopenhauer1, now I can really say that this is economics 1.0. That's why I called it "market mechanism kicks in". When there far more demand than supply, then prices go up. It might not be the individual supplier that raises the prices, it may be the buyer that knows that there's a shortage and simply offers to pay a higher price. Markets are a two way street, you know. It's very naive to think that in a shortage situation it's the suppliers that are raising the prices because of greed.This is basically what I am talking about.. So what does this mean "market mechanisms kicks in and prices rise"? Suppliers raise the prices to invest in more output or because they think they can make an extra buck. THIS causes prices to rise. Again, it is human behavior. Saying things like "market mechanisms" tries to take the human behavioral element out of this. — schopenhauer1
What makes it a "market mechanism" is the amount of people involved making good (or bad) judgements. That's why we talk about aggregate demand and supply, macroeconomics vs. microeconomics. Not everyone makes good choices. But on average, people are reasonable. And before you say it, yes, there are Animal Spirits as Keynes himself said. Hence many times that market predict things wrong.Again, it is human behavior. Saying things like "market mechanisms" tries to take the human behavioral element out of this. — schopenhauer1
Especially now. You see, in the case Weimar Republic and Zimbabwe the government printed money to to pay salaries and direct government purchases. That money goes straight into the economy. This comes public (that the government is printing money to pay it's bills) and the people do understand this and the faith on the currency starts to falter. That causes hyperinflation. That is a different case. In the financial crisis the money went to prop up the banks, basically to pay for the bad loans they had lent. The money didn't hit the economy, hence no inflation.True although wages going up barely happens or happens at the rate of the inflation of prices. — schopenhauer1
Is the economy anytime in an equilibrium? I see it always going somewhere, up or down...Yeah, savings is a factor classical economics doesn't take in making non-equilibrium. — schopenhauer1
Ok schopenhauer1, now I can really say that this is economics 1.0. That's why I called it "market mechanism kicks in". When there far more demand than supply, then prices go up. It might not be the individual supplier that raises the prices, it may be the buyer that knows that there's a shortage and simply offers to pay a higher price. Markets are a two way street, you know. It's very naive to think that in a shortage situation it's the suppliers that are raising the prices because of greed. — ssu
What makes it a "market mechanism" is the amount of people involved making good (or bad) judgements. That's why we talk about aggregate demand and supply, macroeconomics vs. microeconomics. Not everyone makes good choices. But on average, people are reasonable. And before you say it, yes, there are Animal Spirits as Keynes himself said. Hence many times that market predict things wrong. — ssu
Now it's likely that the cash given to people won't affect much prices as there is the economy is plunging. For the moment. It's interesting to see what happens. — ssu
Is the economy anytime in an equilibrium? I see it always going somewhere, up or down... — ssu
In my view an "ethical" price is a marketing ploy and simply hypocrisy.One person's "reasonable" is another person's "unethical". — schopenhauer1
Now days it's about just who gets the boost. Is it the few rich people or the one's working on the correct market sector, the one's in a labor union that has the ability to pressure the employers? Just what segment of the population get's the benefit? These things are complicated and politics come to the equation always.Yeah agreed. It's what to do about it.. Classical economists would say to ride out any economic difficulties, and Keynesians will say that government should give a boost. — schopenhauer1
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