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UK's Macro Economics - Essay Example

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UK's Macro Economics

Economics is the science of wealth creation and it involves formulation of theories that are debated and tested leading to some being accepted, rejected or modified. They all involve the question of what to produce using the scarce resources, how to ensure stable prices with full employment and how to ensure and provide a raising living standard for the people today and tomorrow.( Sloman 2010)
John Keynes was (1883-1946) was a British economist whose ideas greatly impacted on the modern day macro economics with an effect on the British social liberalals. In 1936 he broke from the classical theory of economics with the publication of the General Theory of Employment, Interest and Money that advocated for an interventionist policies by the government. The main tool by which the government will intervene included the fiscal and monetary policy to mitigate against the adverse effects of capitalism that is recession, depression and business cycles. His theories are what are known as the Keynesian theory of economics. For the classical view held that in a recession that wages and salaries would decline to restore full employment, but Keynes held that the opposite was true. Falling prices and wages depresses peoples incomes thus preventing a revival of spending. Keynes insisted that a direct government spending was necessary to increase the spending. In his theory one persons spending goes towards another earnings thus when he/she is spending her money she/he is infect supporting another's earning and the circle continues and this is what helps and support the normal function of an economy. When a depression hits, people hoard money and this action deprives the economy of money in circulation making it to be at a stand still. These 'crunch' can be best corrected by the government intervention so as to increase spending; by increasing money supply or by buying things on the market itself. These is different, from the classical school of thought. The classical school of economic thought began with the publication of Adams Smith monumental work in 1776 that titled the Wealth of Nation. The book identified land, labor and capital as the three main factors of production that contribute to a nation's wealth. To smith the ideal economy is that which is self regulating market that operates on the forces of the demand and supply thus automatically satisfying the market. He referred to this market mechanism as the invisible hand that, leads all individuals in the pursuit of their own self interest so as to produce the greatest benefit for the society as a whole. He embraced such notion as laissez-faire, into his own economic theories and rejected the notion that only agriculture was productive. This theory excluded the incorporation of the public sector in the market as the market will achieve balance on its own. The main difference between the classical and Keynesian theories of economics involve the role of the state in the economic life of the individuals of which when summed up has an impact on the overall macro economic condition of a nation. Keynesians economics warns against the practice of too much savings and spending in the economy. Keynesian advocates for wealth redistribution to the poorer section ...Show more

Summary

Macro economics is the study of the entire economy as a whole in terms of; the total amount of goods and services produced, total income earned, level of employment and the general behavior of the prices. It aims at addressing the factors that result into the economy to grow over time, what causes short-run fluctuations in the economy and the values that affect the economic indicators…
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UKs Macro Economics essay example
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