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KEYNESIAN ECONOMICS: A school of thought developed by John Maynard Keynes built on the proposition that aggregate demand is the primary source of business cycle instability, especially recessions. The basic structure of Keynesian economics was initially presented in Keynes' book The General Theory of Employment, Interest, and Money, published in 1936. For the next forty years, the Keynesian school dominated the economics discipline and reached a pinnacle as a guide for federal government policy in the 1960s. It fell out of favor in the 1970s and 1980s, as monetarism, neoclassical economics, supply-side economics, and rational expectations became more widely accepted, but it still has a strong following in the academic and policy-making arenas.
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Lesson 19: Money Creation | Unit 2: Fred Returns
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Page: 7 of 23
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Elizabeth needs a loan, but she doesn't want gold, she wants receipts, she wants money.Remember that: - Fred issues receipts only for deposits.
- Can he just issue receipts?Two options:
- One: Fred can loan gold from his safe, which Elizabeth can deposit for receipts.
- Two: Fred can loan Elizabeth the receipts directly. Note that:
- With both, Elizabeth ends up with receipts and Fred ends up with the same amount of gold in his safe.
- With both, receipts are not all backed by gold: The loan increases the number of receipts in circulation.Fractional-reserve banking:
- If every receipt is redeemed, then Fred is in trouble.
- But Fred knows that only a fraction of the gold is redeemed at any given time.
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FALLACY OF DIVISION The logical fallacy of arguing that what is true for the whole is also true for the parts. In the study of economics, this takes the form of assuming that what works for the aggregate, or macroeconomy, also works for parts of the economy, such as households or businesses. The contrasting fallacy is the fallacy of composition.
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YELLOW CHIPPEROON
[What's This?]
Today, you are likely to spend a great deal of time strolling through a department store seeking to buy either a how-to book on wine tasting or a bookshelf that will fit in your closet. Be on the lookout for bottles of barbeque sauce that act TOO innocent.
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Three-forths of the gold mined each year is used to manufacture jewelry.
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"When the solution is simple, God is answering." -- Albert Einstein
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EER
European Economic Review
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