LESSON 3 CLASSICAL & KEYNESSIAN THEORY

• Classical Economist Theory


  Market is at its best with least government intervention: free competition and free trade
• Classical Economist Theory


  • Originated in late 18th century with Adamson Smith – David Ricardo, and John Stuart Mill
• Laissez Faire


  Market is best when no government
• Capitalism


  Individuals can acquire wealth in a legal process
• Great Depression (WW2 / 1939-1945)
• Keynessian Economics (John Maynard Keynes)


  When economic growth is lacking, the government should stimulate demand
• Role of Gov't in Economy


  • Fiscal policy
  • Monetary policy
  • Growth/supply side policy
• Expansionary Fiscal


  Increase tax rates to increase gov't expenditure (infrastructure, social programs, subsidy etc.)
• Contractionary Fiscal


  Decrease tax rates to slow down growth and inflation
• Sources of Public Funds

  • Taxes
  • Borrowing
  • Seignior age
  • Public Enterprise
  • Privatization