Previously, classical economic thinking held that cyclical swings in employment and economic output would be modest and self-adjusting. According to this classical theory, if aggregate demand in the economy fell, the resulting weakness in production and jobs would precipitate a decline in prices and wages. A lower level of inflation and wages would induce employers to make capital investments and employ more people, stimulating employment and restoring economic growth. The depth and severity of the Great Depression, however, severely tested this hypothesis.
Original Pages The aim of this paper is to investigate the causes of the poor growth performance in Italy and the responsibility of the euro for this crisis. The theoretical approach applied is based on the balance-of-payments constraint hypothesis known as Thirlwall's lawadapted to include internal and external imbalances.
Our empirical analysis shows that both the extended model and the original Thirlwall's law over-predict the actual growth in Italy, suggesting that there are supply constraints that impede the economy from growing faster.
Another conclusion is that part of the decline in economic growth is explained by the loss of competiveness during the euro period. A scenario analysis shows that a budget deficit and public debt discipline aiming at achieving the goals of the Stability Pact are not significant stimuli for faster growth.
On the other hand, reducing the import dependence of the components of demand, or reducing the import and increasing the export shares in the economy, are the most effective policies for fostering growth in Italy.
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Your library may not have purchased all subject areas. If you are authenticated and think you should have access to this title, please contact your librarian.Identify whether each of the following statements is more likely to come from a classical economist or a Keynesian economist.
a. "Because employee wages aren't changing quickly, the economy is in for trouble." Keynesian b.
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"Government intervention in the market will do more harm than good." classical c. The aim of this paper is to investigate the causes of the poor growth performance in Italy and the responsibility of the euro for this crisis.
The theoretical approach applied is based on the balance-of-payments constraint hypothesis (known as Thirlwall's law), adapted to include internal and. Keynesian economics developed during and after the Great Depression, from the ideas presented by John Maynard Keynes in his book, The General Theory of Employment, Interest and Money.
Keynes contrasted his approach to the aggregate supply . The saving-investment equality is assured by applying the notion of flexible prices to interest rates in the financial markets. (or AS-AD analysis) as a synthesis and advancement of both classical economics and Keynesian economics.
Keynesian Critique If a decline in investment, for example, causes a downward shift of the AE . Keynesian stimulus theory ignores the second half of the story: Deficit spending must still be financed, and financing carries budgetary consequences and economic costs.
Classical economics became closely associated with economic, and later political, freedom. Rise of the Classical Theory The classical theory developed shortly after the birth of western capitalism.