1. Economics 12

2. Adam smith Father of Economics
Wrote The Wealth of Nations book about European financial development
Supporter of laissez-faire economics – the idea that markets will regulate themselves through  competition, supply and demand, and self-interest.
Created the idea of GDP

3. Hume

4. Economic thoughts before Adam smith
Hume
100 pages of essays in his Political Discourses (1752)
price-specie-flow mechanism
Extended Jon Locke’s view of property rights
Quantity theory of money
International theory of the balance of trade
Locke
Dudley North

5. Economic thoughts before Adam smith
John Locke
father of liberalism
You control your own destiny
Property is a natural right derived from labor
Locke believed reason and tolerance is what guides people’s actions
“All wealth is the product of labour”
Does not support free trade
Supported mercantilist (vs free trade)
Mercantalist : wealth in the world is static (via accumulation of gold and silver)

6. John Locke https://www.youtube.com/watch?v=i-a4ueSsa3Y

7. ECONOMIC THOUGHTS BEFORE ADAM SMITH
Dudley North
Wealth exists independently of gold or money, and instead, its source is human labour
The export of money in the course of traffic increases the national wealth instead of diminishing it
North supports free trade: he argues no trade is unprofitable to the public
Prices must determine themselves and cannot be fixed by regulations

8. classical theory of value, growth, and distribution
Theory of value, or price, to investigate economic dynamics.
Origins and the differing objectives of the Classical Economy
Value usually refers to the value of exchange, which is separate from the price.
Market prices are jostled by many transient influences that are difficult to theorize about at any abstract level.
Differences in the major comparative approaches to theories of growth, value and distribution
Analogies between the great classical economic problems and current worries about globalization, population pressures and economic crises

9. Classical economics thought on money, banking, and policy
Classical economic theory supports the free, self-regulating market (less govt. policy)
British classical economists in the 19th century had a well-developed controversy
Debates between proponents of the theory of endogenous money
Inflation is caused by banks issuing an excessive supply of money
The supply of money automatically adjusts to the demand, and banks can only control the terms
 All value is derived from labour. Natural prices were the sum of natural rates of wages, profits (including interest on capital and wages of superintendence) and rent.

10. Marxist Economics
Includes different theories which are sometimes opposed to each other
Marxian analysis is used to complement or supplement other economic approaches.
analysis of crisis in capitalism, the role and distribution of the surplus product and surplus value in various types of economic systems
Criticizes Adam Smith economics
the nature and origin of economic value, the impact of class and class struggle on economic and political processes, and the process of economic evolution.
Specialization of the labor force, coupled with a growing population, pushes wages down and that the value placed on goods and services does not accurately account for the true cost of labor.

11. Marxist Economics pt. 2
The capitalist class enriches itself by exploiting the working class (proletariat), so the economic interests of the two classes are opposed and therefore incompatible.
 The cost of labor power is determined by the cost of the goods and services (food, clothing, shelter, etc.) necessary to maintain and reproduce workers.
Capitalists do not pay workers for the value they create: they extract surplus value, the difference between the value created by a worker and the cost of their labor power (their wages) from the working class. Marx termed this exploitation
Socialism would be a step towards the disappearance of the state, and communism would bea society where goods and services would be distributed "to each according to his need, from each according to his ability."

12. Neoclassical economics and the role of market
Developed in the 19th century
Dominates microeconomics
Based on books by William Stanley Jevons, Carl Menger and Léon Walras
An approach to economics that relates supply and demand to an individual's rationality and his ability to maximize utility or profit
Focuses on the determination of goods, outputs, and income distributions in markets through supply and demand.
Uses mathematical equations to study various aspects of the economy.

13. Neoclassical economics Theories
Neoclassical econ has 3 central assumptions proposed by E. Roy Weintraub:
People have rational preferences between outcomes that can be identified and associated with values.
Individuals maximize utility and firms maximize profits.
People act independently on the basis of full and relevant information.
LRAS Long Run Aggregate Supply

14. Keynesian theory of money, investment, and cycles
Macroeconomic theories about the influence of aggregate demand on economic output in recessions.
Aggregate demand does not necessarily equal the productive capacity of the economy
Aggregate demand is influenced by a host of factors and sometimes behaves erratically, affecting production, employment, and inflation
Can be mitigated by economic policy responses, which can help stabilize output over the business cycle.

15. Neoclassical synthesis
absorbing the macroeconomic thought of John Maynard Keynes into neoclassical economics
represents incentives and costs as playing a pervasive role in shaping decision making
This theory suggests that in the short term, markets are not self-regulating but in the long term, they are, making free markets best for distributing resources
KEY IDEAS:
Full employment is possible
Fiscal policy can be used to manage demand and the rate of economic growth

16. Neoclassical synthesis phillips curve
There is a trade-off between inflation and unemployment and the government must decide which to prioritize.

17. Contemporary economic thought
The financial collapse of 2007/08 and the subsequent deep recession and sluggish recovery have left huge scars on the global economy
Crisis for the real economy and for economic policymakers is also a crisis for the economics profession and for economic theory
Fail to predict the collapse and recession
Put neoclassical economic thinking in the dock
 Dispersed interaction
The absence of a global controller

18. Contemporary economics in response to 2008 financial crisis
Resurgence of Keynesian economics supporting government intervention in the economy
Austerity was another response. Austerity is reducing government deficits and includes spending cuts, tax increases, or a mixture of bot

19. Behavioral economics Bounds of rationality of economic agents
Behavioral models typically integrate insights from psychology, neuroscience, and microeconomic theory
Studies the effects of psychological, cognitive, emotional, cultural and social factors on the economic decisions of individuals and institutions and the consequences for market prices, returns, and resource allocation,
Includes how market decisions are made and the mechanisms that drive public choice