30 Jun POLITICAL ECONOMY
Political Economy
1. Fill in the matrix below:
Classical Economics: Smith Neo-classical Economic Keynesian Economics
Primary Assumptions
Focus on unit of analysis:
Social classes
Or individuals?
Level of Analysis
Micro
Macro
Both
Normative role of the state in relation to the market:
Integrated or separate?
Normative Role of the state: Who should determine property rights?
Normative Role of state fiscal policy in relation to
economic downturns (recessions/depressions)
Direction of supply and demand? Which causes which to occur?
Are tariffs positive?
Yes or No?
Markets are stable? Yes or No?
Necessity of Comparative
Advantage Yes or No?
Distribution of the Surplus: who should get the surplus?
Regulation of markets by the state is accepted? Yes or No?
2. What is occurring in the graph below? Specifically,
(a) Why are the lines marked D1 and D2 curved and not straight?
(b) What is occurring in terms of price?
3. What is occurring in the graph below? Specifically,
(a) Why are the lines marked S 1 and S2 curved and not straight?
(b) What is occurring in terms of price?
4. There were two major theoretical critiques of the theory of classical liberal economics by neo-
classical economists. What were the primary sources of their disagreements with classical
economics? Explain each.
5. Assume the responsibility of any nation state regardless of economic ideology needs to deliver
necessary/essential goods and services. Do not list any services. What I want to know is
theoretically, w categories of goods and services should every modern nation state provide. Why?
6. How is aggregate demand determined and what is its relationship to price, if any?
7. Mercantilism is argued to be no longer relevant. Is this true? Are there any current neo-
mercantilist policies in place? If so, provide examples.
8. During times of economic downturn, Keynesian economists argue lowering interest rates alone
will not stimulate the economy, so a nation state also needs fiscal policy stimulus.
(a) Why do Keynesians take this position?
(b) How do neo-classical economists respond? What is their recommendation(s)?
(c) How do monetarists respond? What is their recommendation(s) during economic
downturns?
9. What is the Keynesian formula for increasing the wealth of the state? Explain each variable in
the formula.
1 0. Assume a problem of high unemployment.
As far as partisan politics in the US is concerned Democrat vs. Republican what would you say
would their respective positions be on the following “solutions”. Based on your completion of rhe
table below, what would you conclude
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