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NEW CLASSICAL ECONOMICS: A body of economic thought emerging in the last quarter of the 20th century based on greater reliance on voluntary market exchanges, a laissez faire approach to government policies, and recognition of the supply-side of the economy. New classical economics, as the name implies, is a rejuvenation of classical economics that dominated economic thought from the 1770s to the 1930s and was developed to counter Keynesian economics that was prevalent from the 1930s to the 1970s.

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Lesson Contents
Unit 1: Basic Flow
  • Overview
  • Four Sectors
  • Three Markets
  • The Physical Flow
  • The Payment Flow
  • Unit 1 Summary
  • Unit 2: Financial Markets
  • The Paper Economy
  • Saving
  • Investment
  • Unit 2 Summary
  • Unit 3: Government
  • What It Does
  • Taxes
  • Government Purchases
  • Government Borrowing
  • Unit 3 Summary
  • Unit 4: Foreign
  • Foreign Trade
  • Exports and Imports
  • Unit 4 Summary
  • Unit 5: Real World
  • Expenditures
  • Production And Income
  • Investment
  • Government Spending
  • Saving
  • Unit 5 Summary
  • Course Home
    Circular Flow

    This lesson introduces the circular flow model of the macroeconomy. The circular flow is a simple model based on the buying and selling relation between the household and business sectors which occurs through the product and factor markets. As a bonus, we complicate the simply circular flow model, by including the government and foreign sectors, and the financial markets. This lesson introduces several important macroeconomic concept, but more importantly, provides a useful model for interpreting macroeconomic activity.

    • In the first unit, we get an introduction to the simplest circular flow model that includes the household and business sectors and the product and factor markets.
    • The second unit builds on the simple model by introducing the financial markets, which highlights the importance of household saving and business investment.
    • The circular flow is expanding further in the third unit, with the introduction of the government sector, which highlights how taxes are diverted away from the household sector.
    • The fourth unit adds one more sector to the circular flow model, the foreign sector, which illustrates the roles played exports and imports.
    • The fifth unit wraps up this lesson by showing how several key measures of production and income revealed in the analysis of gross domestic production related to the circular flow.

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    AXIOM

    A basic precondition or assumption underlying a theory. Axioms are basic, unverifiable world view assumptions--including personal beliefs, political views, and cultural values--that form the foundation of a theory.

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    BLACK DISMALAPOD
    [What's This?]

    Today, you are likely to spend a great deal of time going from convenience store to convenience store wanting to buy either a wall poster commemorating the 2000 Olympics or a flower arrangement with a lot of roses for your grandmother. Be on the lookout for spoiled cheese hiding under your bed hatching conspiracies against humanity.
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    In 1914, Ford paid workers who were age 22 or older $5 per day -- double the average wage offered by other car factories.
    "To sit back and let fate play its hand out, and never influence it, is not the way man was meant to operate."

    -- John Glenn, astronaut, U.S. senator

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