MACROECONOMICS

Macroeconomics

Abstract

The purpose of this study is to expand the boundaries of our knowledge by exploring relevant literature related to Macroeconomics. The main focus of the research paper is to focus the key approaches of Keynesian and Monetarists theorists regarding long-run macroeconomics stability, impact of budget deficits on the trade deficit, supply-side economists view for government deficit, economic policies affecting trade deficit and protectionist policies and effects on trade-deficit.

Table of Contents

Introduction1

Discussion1

Keynesians vs. Monetarists1

Impact of budget deficits on the trade deficit3

Supply-side economists and government deficit5

Economic policies affecting trade-deficit5

Protectionist Policies and effects on Trade deficit6

Conclusion7

References9

Macroeconomics

Introduction

Macroeconomics is a branch of economics dealing with the behavior, performance, structure, and decision-making of the entire economy, be it local, national or global. It builds up models that explaining the relationship between economic factors, such as output, national income, investments, consumption, unemployment, savings, global finance and trade. A variety of different macroeconomic schools of thought and approaches exist to explain economic growth and development. The mainstream debate historically has been between the Keynesian and Monetarist schools of thought.

Discussion

Macroeconomics basically tries to explain the relationship between aggregate economic variables. A variety of different macroeconomic schools of thought and approaches exist to explain economic growth and development. The mainstream debate historically has been between the Keynesian and Monetarist schools of thought.

Keynesians vs. Monetarists

Keynesian theorists believe that it is the responsibility of government job to even out the variations in business cycles by intervening in the marketplace and introducing effective monetary policy. The government intervention should be by introducing tax-breaks and government spending to control and stimulate the economy. They believe that the government should decrease their spending and tax should be increased when the economy is booming, to keep the inflation in check.

Over the course of history, the theoretical challenge to Keynesian economics is thrown by Monetarists. They are of the view that money supply changes determine the performance of the economy and that the interference by government in the economy may destabilize it, in fact, Laissez faire is the best approach. They also believe that, in the long-run, changes to the money supply causes inflation and impacts price level.

Keynesians are influenced by the implication of the monetary policy and money supply, especially over the long run. They believe that the rapid money growth threatens price stability in the long run. They prefer monetary policy more as compared to fiscal policy.

Historically, both schools of thought have had serious confrontations on the principle of long-run macroeconomic stability. Economists worldwide believe and argue that the overall debate was won by Keynesians but Monetarists did manage to convince and win on many principles against Keynesians. Regardless of the substantial differences and convergence that exist between the two schools of thought the more vital differences are summarized in the table below.

Keynesians argue that the Fed when conducting monetary policy should use discretion, while Monetarists believe in the rule of long-run growth of money.

Keynesians hold the fiscal policy important for long-run growth, whereas Monetarist opposes the idea of the fiscal policy being ...