Macroecomics

Depression
Monaterist - John Stuart Mill Milton Friedman
Keynes Hyman Minsky - C,lapse in employment, lack of demand.

Hyman Philip Minsky (September 23, 1919 October 24, 1996) was an
American economist and professor of economics at Washington University in
St. Louis. His research attempted to provide an understanding and explanation
of the characteristics of financial crises. Minsky was sometimes described as a
post-Keynesian economist because, in the Keynesian tradition, he supported
some government intervention in financial markets and opposed some of the
popular deregulation policies in the 1980s, and argued against the
accumulation of debt. His research was noticed by Wall Street.[1]
Minsky proposed theories linking financial market fragility, in the normal life
cycle of an economy, with speculative investment bubbles endogenous to
financial markets. Minsky claimed that in prosperous times, when corporate
cash flow rises beyond what is needed to pay off debt, a speculative euphoria
develops, and soon thereafter debts exceed what borrowers can pay off from
their incoming revenues, which in turn produces a financial crisis. As a result
of such speculative borrowing bubbles, banks and lenders tighten credit
availability, even to companies that can afford loans, and the economy
subsequently contracts.
This slow movement of the financial system from stability to crisis is something
for which Minsky is best known, and the phrase "Minsky moment" refers to this
aspect of Minsky's academic work.
"He offered very good insights in the '60s and '70s when linkages between the
financial markets and the economy were not as well understood as they are
now," said Henry Kaufman, a Wall Street money manager and economist. "He

showed us that financial markets could move frequently to excess. And he

underscored the importance of the Federal Reserve as alender of last
resort."[4]
Minsky's model of the credit system, which he dubbed the "financial instability
hypothesis" (FIH),[5] incorporated many ideas already circulated by John
Stuart Mill, Alfred Marshall, Knut Wicksell and Irving Fisher.[6] "A fundamental
characteristic of our economy," Minsky wrote in 1974, "is that the financial
system swings between robustness and fragility and these swings are an
integral part of the process that generates business cycles."[7]
Disagreeing with many mainstream economists of the day, he argued that
these swings, and the booms and busts that can accompany them, are
inevitable in a so-called free market economy unless government steps in to
control them, through regulation, central bank action and other tools. Such
mechanisms did in fact come into existence in response to crises such as the
Panic of 1907 and the Great Depression. Minsky opposed the deregulation
that characterized the 1980s.
It was at the University of California at Berkeley that seminars attended by
Bank of America executives helped him to develop his theories about lending
and economic activity, views he laid out in two books, John Maynard Keynes
(1975), a classic study of the economist and his contributions, and Stabilizing
an Unstable Economy (1986), and more than a hundred professional articles.

Jean Baptiste Say - Circular flow - 1903

ean Baptiste Say (Lyon, 5 de janeiro de 1767

Paris, 15 de novembro de 1832) foi um economista
francs, formulador da chamada a Lei de Say, Jean
nasceu em uma famlia de mercadores de tecidos,
fortemente influenciada pelas ideias iluministas.
Aps a Revoluo Francesa chegou a exercer a

ocupao de jornalista em peridicos liberais

franceses, onde aproximou-se das ideias deAdam
Smith e do estudo da cincia econmica, a qual
passou a se dedicar ao mesmo tempo que
administrava uma indstria txtil.
Muitas vezes a Lei de Say resumida da seguinte
maneira:

A oferta de um produto sempre gera demanda por

outros produtos
"A oferta cria sua prpria demanda."

Porem, importante notarmos que essas so

interpretaes Keynesianas e no necessariamente
expresso o que a Lei de Say realmente disse. A Lei
de Say no faz a afirmao que a oferta
automaticamente cria demanda, mas que para se ter
uma fundao efetiva para demanda derivada de
uma prvia fonte de oferta.
Excesses demand for something while excesses supply for another thing.
Crisis comes when excesses demand for assets, money, bonds - papers from
corporations, nations that will give your money back five years from now.
Excesses demand for money. Fix the problemby FED increase money - 1982

Excesses demand for safety, for triple AAA assets. Minsky. Crisis 2008, lack of
regulation.

Inflation
Irving fisher
Milton Friedman

Milton Friedman (Brooklyn, 31 de Julho de 1912[1]

So Francisco, 16 de Novembro de 2006) pai do
terico David Friedman, foi um dos mais destacados
economistas do sculo XX e um dos mais influentes
tericos do liberalismo econmico. Principal apstolo
da Escola Monetarista e membro da Escola de
Chicago, alm de defensor do laissez faire e do
mercado livre, Friedman foi conselheiro do governo
chileno de Augusto Pinochet e muitas de suas ideias
foram aplicadas na primeira fase do governo Nixon e
em boa parte do governo Reagan.
[editar]
Friedman was best known for reviving interest in the money supply as a
determinant of the nominal value of output, that is, the quantity theory of
money. Monetarism is the set of views associated with modern quantity theory.
Its origins can be traced back to the 16th-century School of Salamanca or

even further but Friedman's contribution is largely responsible for its modern
popularization. He co-authored, with Anna Schwartz, A Monetary History of
the United States (1963), which was an examination of the role of the money
supply and economic activity in U.S. history. A striking conclusion of their
research was one regarding the role of money supply fluctuations as
contributing to economic fluctuations. Several regression studies with David
Meiselman during the 1960s suggested the primacy of the money supply over
investment and government spending in determining consumption and output.
These challenged a prevailing but largely untested view on their relative
importance. Friedman's empirical research and some theory supported the
conclusion that the short-run effect of a change of the money supply was
primarily on output but that the longer-run effect was primarily on the price
level.
Friedman was the main proponent of the monetarist school of economics. He
maintained that there is a close and stable association between price inflation
and the money supply, mainly that price inflation should be regulated with
monetary deflation and price deflation with monetary inflation. He famously
quipped that price deflation can be fought by "dropping money out of a
helicopter.""[25]
Friedman's arguments were designed to counter popular claims that price
inflation at the time was the result of increases in the price of oil, or increases
in wages: as he wrote,
Inflation is always and everywhere a monetary phenomenon.
Milton Friedman, Wincott Memorial Lecture, London, September 16,
1970[26]
Friedman rejected the use of fiscal policy as a tool of demand management;
and he held that the government's role in the guidance of the economy should
be restricted severely. Friedman wrote extensively on the Great Depression,
which he termed the Great Contraction, arguing that it had been caused by an
ordinary financial shock whose duration and seriousness were greatly
increased by the subsequent contraction of the money supply caused by the
misguided policies of the directors of the Federal Reserve.
The Fed was largely responsible for converting what might have been a
garden-variety recession, although perhaps a fairly severe one, into a major
catastrophe. Instead of using its powers to offset the depression, it presided

over a decline in the quantity of money by one-third from 1929 to 1933 ... Far
from the depression being a failure of the free-enterprise system, it was a
tragic failure of government.
Milton Friedman, Two Lucky People, 233
Friedman also argued for the cessation of government intervention in currency
markets, thereby spawning an enormous literature on the subject, as well as
promoting the practice of freely floating exchange rates. His close friend
George Stigler explained, "As is customary in science, he did not win a full
victory, in part because research was directed along different lines by the
theory of rational expectations, a newer approach developed by Robert Lucas,
also at the University of Chicago."[27]
Friedman was also known for his work on the consumption function, the
permanent income hypothesis (1957), which Friedman himself referred to as
his best scientific work.[28] This work contended that rational consumers would
spend a proportional amount of what they perceived to be their permanent
income. Windfall gains would mostly be saved. Tax reductions likewise, as
rational consumers would predict that taxes would have to increase later to
balance public finances. Other important contributions include his critique of
the Phillips curveand the concept of the natural rate of unemployment (1968).
This critique associated his name, together with that of Edmund Phelps, with
the insight that a government that brings about greater inflation cannot
permanently reduce unemployment by doing so. Unemployment may be
temporarily lower, if the inflation is a surprise, but in the long run
unemployment will be determined by the frictions and imperfections of the
labor market.
Friedman's essay "The Methodology of Positive Economics" (1953) provided
the epistemological pattern for his own subsequent research and to a degree
that of the Chicago School of Economics. There he argued that economics as
science should be free of value judgments for it to be objective. Moreover, a
useful economic theory should be judged not by its descriptive realism but by
its simplicity and fruitfulness as an engine of prediction.

Philips curve inflation

In economics, the Phillips curve is a historical inverse relationship between

the rate of unemployment and the rate of inflation in an economy. Stated
simply, the lower the unemployment in an economy, the higher the rate of
inflation. While it has been observed that there is a stable short run tradeoff
between unemployment and inflation, this has not been observed in the long
run.
n the 1970s, many countries experienced high levels of both inflation and
unemployment also known as stagflation. Theories based on the Phillips curve
suggested that this could not happen, and the curve came under a concerted
attack from a group of economists headed by Milton Friedman.
Friedman argued that the Phillips curve relationship was only a short-run
phenomenon. He argued that in the long-run workers and employers will take
inflation into account, resulting in employment contracts that increase pay at
rates near anticipated inflation. Unemployment would then begin to rise back
to its previous level, but now with higher inflation rates. This result implies that
over the longer-run there is no trade-off between inflation and unemployment.
This implication is significant for practical reasons because it implies that
central banksshould not set employment targets above the natural rate.
More recent research has shown that there is a moderate trade-off between
low-levels of inflation and unemployment. Work by George Akerlof, William
Dickens, and George Perryimplies that if inflation is reduced from two to zero
percent, unemployment will be permanently increased by 1.5 percent. This is
because workers generally have a higher tolerance for real wage cuts than
nominal ones. For example, a worker will more likely accept a wage increase
of two percent when inflation is three percent, than a wage cut of one percent
when the inflation rate is zero.
Most economists no longer use the Phillips curve in its original form because it
was shown to be too simplistic. This can be seen in a cursory analysis of US
inflation and unemployment data 1953-92. There is no single curve that will fit
the data, but there are three rough aggregations195571, 197484, and
1985-92each of which shows a general, downwards slope, but at three very

different levels with the shifts occurring abruptly. The data for 1953-54 and
1972-73 do not group easily, and a more formal analysis posits up to five
groups/curves over the period.
But still today, modified forms of the Phillips Curve that take inflationary
expectations into account remain influential. The theory goes under several
names, with some variation in its details, but all modern versions distinguish
between short-run and long-run effects on unemployment. The "short-run
Phillips curve" is also called the "expectations-augmented Phillips curve",
since it shifts up when inflationary expectations rise, Edmund Phelps and
Milton Friedman argued. In the long run, this implies that monetary policy
cannot affect unemployment, which adjusts back to its "natural rate", also
called the "NAIRU" or "long-run Phillips curve". However, this long-run
"neutrality" of monetary policy does allow for short run fluctuations and the
ability of the monetary authority to temporarily decrease unemployment by
increasing permanent inflation, and vice versa. Blanchard (2000, chapter 8)
gives a textbook presentation of the expectations-augmented Phillips curve.
An equation like the expectations-augmented Phillips curve also appears in
many recent New Keynesian dynamic stochastic general equilibrium models.
In these macroeconomic models with sticky prices, there is a positive relation
between the rate of inflation and the level of demand, and therefore a negative
relation between the rate of inflation and the rate of unemployment. This
relationship is often called the "New Keynesian Phillips curve." Like the
expectations-augmented Phillips curve, the New Keynesian Phillips curve
implies that increased inflation can lower unemployment temporarily, but
cannot lower it permanently. Two influential papers that incorporate a New
Keynesian Phillips curve are Clarida, Gal, andGertler (1999) and Blanchard
and Gal (2007)

Pi - inflation