Three Schools of Economics

*Classical*
-John B. Say
Adam Smith
David Ricardo
Alfred Marshall
-competition is good(invisible hand)
*-Say's Law- supply creates its own demand
-AS determines output
-economy is always close to or @ full employment.
- in the long run the economy will balance at full employment.
*Triple down Effect
^will help rich first,then everyone else later.
^savings is considered a leakageis equal to investment which leads to injection.
-Prices & wages are flexible downward
-whatever output is produced will be demanded.
-instituted concept of laissez-faire. (no govt intervention)

*KEYNESIAN*(this is what we use)
-John Maynard Keynes
-competition is flawed
-AD is key, not AS
- leaks cause constant recession
-savings cause recessions
-ratchet effects & sticky wages
-in the long run we are all dead.
-demand creates its own supply, therefore AD curve is unstable.
-savers & investers save and invest for diff. reasons.
-the economy is not always close to or @ full employment
-prices and wages are inflexible downward (monopolistic competition creates a situation)
**- there is govt intervention
       -they intervene through fiscal or monitary policy.

*Monetary*
-Allen Greenspan
Ben Bernanka
-congress cant time policy options
-govt can best control health of economy by regulating banks and interest rates.
- easy money- recession
-tight money- inflation
-monitary policy( change is required reserves)
-use bonds through open market
- use the interest rate to change discount rate and federal fund rate.