RESUME
Modern Economic and Classical Economic
Lecturer :
Irvan Yoga Pardistya, SE., MM., Ak
By :
Lydia Nur Athifah
1610631030167
ACCOUNTING
FACULTY OF ECONOMICS AND BUSINESS
UNIVERSITY OF SINGAPERBANGSA KARAWANG
October 2016
PREFACE
Alhamdulillah
with permission of Allah SWT I can finish this assignment. Sorry if there is a
mistakes and is not perfect, because perfection belongs only to Allah SWT.
Hopefully
in the next assignment would be better than this and fix the mistakes earlier.
Karawang,
9th October 2016
Lydia Nur Athifah
Table of Contents
MODERN ECONOMIC AND CLASSICAL ECONOMIC
Preface............................................................................................................................
·
Modern Growth-Oriented Definition of Samuelson.................................................
·
Features of the Modern Growth-Oriented
Definition...............................................
·
Problems of Modern Economic................................................................................
·
Classical Economics.................................................................................................
·
Problems of Classic Economic.................................................................................
·
Determination
of Interest Rate..................................................................................
·
Flexibility
of Wages and Economic Activity............................................................
·
Determining
the Level Of Economic Activity..........................................................
·
Keynes's
Critiques of the Classical View..................................................................
·
Classical-Keynesian
Controversy..............................................................................
·
Keynesian
Saving-Investment Plans.........................................................................
References.......................................................................................................................
Modern
Growth-Oriented Definition of Samuelson
In
relatively recent times, more comprehensive definitions of Economics have been
offered. Thus, Professor Samuelson writes, “Economics is the study of how
people and society end up choosing, with or without the use of money, to employ
scarce productive resources that could have alternative uses to produce various
commodities over time and distributing them for consumption, now or in the
future, among various persons or groups in society. It analyses costs and
benefits of improving patterns of resource allocation”. A large number of
modern economists subscribe to this broad definition of Economics.
Features
of the Modern Growth-Oriented Definition
1. Growth-orientation
Economic
growth is measured by the change in national output over time. The definition
says that, Economics is concerned with determining the pattern of employment of
scarce resources to produce commodities ‘over time’. Thus, the dynamic problems
of production have been brought within the purview of Economics.
2. Dynamic
allocation of consumption
Similarly,
under this definition, Economics is concerned with the pattern of consumption,
not only now but also in the future. Thus, the problem of dividing the use of
income between present consumption and future consumption has been brought
within the orbit of Economics.
3. Distribution
The
modern definition also concerns itself with the distribution of consumption
among various persons and groups in a society. Thus, while the problem of
distribution is implicit in the earlier definitions, the modern definition
makes it explicit.
4. Improvement
of resource allocation:
The
definition also says that, Economics analyses the costs and benefits of
improving the pattern of resource allocation. Improvement of resource
allocation and better distributive justice are synonymous with economic
development. Thus, issues of development of a less developed economy have also
been made subjects of the study of Economics.
Problems of Modern Economic
Ø What To Produce?
The very first question
that any economic system must answer is: What goods and services are to be
produced in a society and in what quantities? This question arises from the
fact that human wants are unlimited, while resources are limited.
The satisfaction of human
wants requires the consumption of goods and services. Human beings, therefore,
wish to consume goods and services. But, since resources are limited, the
economic system cannot produce all types of goods and services. Even any
particular good or service cannot be produced in an infinitely large quantity.
Only finite amounts of a limited number of goods and services can be produced.
Therefore, there arises this decision problem. The economy must decide which
goods and services to produce and which goods and services to exclude from
production.The economy must choose its production plan carefully. Everything
cannot be produced and even those things which are produced cannot be produced
in unlimited quantities.
Ø How To Produce?
The second basic problem
that every economy must solve is that of deciding how to produce the goods and
services (that the economy has decided to produce). A particular quantity of a particular
good or service can be produced in many different ways. The economy must choose
a particular way of producing the specified amount of the good. Moreover, this
must be done for each of the different goods and services that the economy
wants to produce.
·
For
Whom To Produce?
Suppose now that the first
two basic problems have been solved i.e., the economy has decided the amounts
of production of various goods and services and has also chosen the appropriate
techniques for producing them. There still remains the problem of deciding the
manner in which the produced goods and services will be used. That will,
obviously, be used to satisfy human wants. But among the members of society,
who will receive how much of the produced commodities? In other words, after
the commodities have been produced, there remains the task of deciding how they
will be distributed. Who will get (to consume) the produced commodities? This
is known as the question: ‘ For whom to produce? It is also known as the
problem of distribution.
Classical Economics
Classical economics (also known as liberal economics) asserts that markets function best with minimal government interference. It was developed in the late 18th and early
19th century by Adam Smith, Jean-Baptiste Say, David
Ricardo, Thomas Robert Malthus, and John
Stuart Mill. Many
writers found Adam Smith's idea of free markets more convincing than the idea,
widely accepted at the time, of protectionism.
Classical economists observe that markets generally regulate themselves, when free of coercion. Adam Smith referred to this as a
metaphorical "invisible hand," which refers to the notion that
private incentives are aligned with society welfare maximization under certain
competitive conditions. Smith warned repeatedly of the dangers of monopoly, and
stressed the importance of competition.
In contrast to classical economics, Keynesian economics supports policies such as deficit
spending, control of the money
supply, and a graduated income tax to counter recession and income
inequality. Most classical
economists reject these ideas. They assert that state intervention makes
recessions worse. Unlike mainstream economics, they blame the Great
Recession on government
interference in the economy.
Problems
of Classic Economic
·
Production Problems
Production problems concerning how to produce
all (goods and services that many people needed). The thought here is do the
production to meet the needs of society in general.
·
Distribution Problems
How so that these objects it can get into the
hands of consumers in need. The classic distribution system is through direct
transactions between producers and consumers doing in the market (the real
market).
·
Consumption Problem
Consumption problem relates to problems of
whether the object is that produced indeed objects that can be owned by the
consumer, is the right item, needed, desirable and were able bought by consumer
.
Determination
of Interest Rate
According to the classical
view of interest rates determine the amount of savings and investment to be
doing in economy. Any change in the interest rate will lead to changes in
household savings and demand funds for investment companies. The change lasted
until the amount savings and the amount of fund requests investment reached.
Flexibility
of Wages and Economic Activity
Classical economists
believe that the economy will reach the level of full work force use based on
the belief that if happen unemployment, market mechanism will create
adjustments in the labor market so that eventually unemployment can be deleted.
If in the economy found unemployment, the unemployment would be willing to work
on the level wages lower from those prevailing in market.
Determining
the Level Of Economic Activity
§ The
amount of capital goods available and used in the economy (K)
§ The
number and quality of the workforce available in the economy (L)
§ The
number and types of natural wealth used (R)
§ The
rate of technology used (T)
Thus economic activity can determined
by using the equation following :
Keynes's
Critiques of the Classical View
Keynes argued that the
usage of work force full is rarely happen, and it is caused due to shortage
aggregate demand in economy.
Differences of opinion are
very contradictory between Keynes and the Classics sourced on issues that is :
1.
Factors that determine the rate of savings,
investment rates, and interest rates in the economy
2.
The characters that related between the level
of wages with the usage of labor by businessman.
Classical-Keynesian Controversy
Keynesian employment theory is built on a critique of the
classical theory. In this critique, Keynes argued that savers and investors
have incompatible plans which may not assure that an equilibrium exists in the
money market, that prices and wages tend to be rigid and equilibrium may not
exist in the product and labor markets, and that periods of severe unemployment
have occurred (which the classical theory denied).
|
The
Keynesian theory was developed in the wake of the great depression. It was
very hard to argue then that only voluntary unemployment can exist as
millions of workers were out of work.
|
Keynesian Saving-Investment Plans
Keynes showed that savers and investors are separate groups
which do not necessarily interact: financial intermediaries (banks) are in
between. When a recession is present, investment may not be equal to saving
because, although the interest rate is very low,
1) borrowers have poor sales prospect,
2) banks are afraid of lending because of potential
bankruptcy, and
3) savers want to wait for higher returns. This causes a
liquidity trap: some saving is idle.
|
Banks
do tend to be very prudent when making loans to businesses when economic
conditions do not seem promising. But, their reluctance to make loans is
itself contributing to the economic slow down.
|
References
http://www.newagepublishers.com/samplechapter/001983.pdf - on Sunday, 9th
October 2016. At 17.20 PM.
https://en.wikipedia.org/wiki/Classical_economics - on
Sunday, 9th October 2016. At 17.24 PM.
http://www.ilmuekonomi.net/2015/12/maslah-poko-ekonomi-modern-dan-klasik.html - on
Sunday, 9th October 2016. At 18.16 PM.
http://file.upi.edu/Direktori/FPEB/PRODI._EKONOMI_DAN_KOPERASI/197511102005012-NAVIK_ISTIKOMAH/Klasik,_Keynes,_masa_Kini.pdf - on Sunday, 9th
October 2016. At 19.39 PM.
http://www.peoi.org/Courses/Coursesen/mac/fram7.html-
On Monday, 10th
October 2016. At 13.03 PM.
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