Economics Essay Example for Free

Economics Essay 1. What did Keynes think some of the chief benefits and defects of capitalism were? Keynesian theory which was developed by Keynes advocates for a mixed economy where the government and private sector are important. In Keynesian model economy is assumed to be below full employment.   Keynesian argues that the aggregate demand for good which seek to increase employment of resources in the country is the driving force of an economy.   According to Keynes, the government’s role is to reduced unemployment rate and deflation level to enhance increased output in an economy (Baqliano and Bertola, 2003). Capitalism developed by Max argues that the poor in capitalistic society are so because of exploitation by the merchants who own the means of production and distribution.   The merchants are said to exploit the poor through low wages.   Marx argued that the value of any economic good should be determined by the labor used to manufacture.   Any cost that is higher than the cost of labor represents the surplus which is the profits the capitalists realize from exploitation of their laborers.   Marx believes that all means of production should be owned by the government or should control by the government.   Marx advocated for socialist government that owns the means of production or democratic administration that control them. Economists who include Keynes deny the claims of Marx that labor is the only measure for surplus.   According to Keynes who support capitalism, employers and employees are guided by the prevailing market wages hence employers offer employment to willing workers. John Keynes believes in capitalistic economy and called on the government to stimulate it but not eliminate it.   However, Keynes site defect in capitalism where he argues that capitalism does not promote full employment, wealth and incomes which the model seeks to achieve in the long run. Keynesian ideologies have been employed by politician but both abuse of the model, inflation has resulted.   This is evident with government manipulating policies to make economic conditions favorable during election which has led to high inflation in most state.   Action by government leads to reduce real wages and real incomes which do comply with Keynes model.   Capitalism has led to segregation of the society into strata according to income and wealth owned.   Most politician use Keynes ideologies by making promises that will earn them votes.   Implementations of the promises require higher taxation which reduces income of individuals (Baqliano and Bertola, 2003). Keynesian advocate for full employment which should be accompanied buy steady controlled inflation level as an effective means of guiding the economy in he interests of capital.   Keynes argue that real wages can be allowed to fall, government expenditure on schools, hospitals and infrastructure can be reduced as anti-inflationary measures and this inflationary measure should be continued until employment level desired is achieved. According to Keynes denied that unemployment is contributed by capitalism. However Keynes argued that unemployment in capitalism is brought by inadequate demand of personal articles of consumption and productive articles of consumption.   Keynes argue that inadequate demand is as a result of the workers tending to accumulate part of their incomes through savings and the inadequate demand   for productive consumption is brought by failure of people to invest their capital profitability which would lead to increase in output and hence reduced unemployment. Keynes advocates that employment can be increased by lowering real wages through inflation introduction and decreasing rate of interest.   Increased rate of interest will encourage investment of capital which will increase aggregate demand.   The government should then expand its budget to allow mass investment. Consumptive demand can be increased through increased extravagance of the ruling class; investing in war prone areas and increased non-productive expenses by the state.   The increased non-productive expenses to attain full employment of the population will actually lead to diminished living standards of laborers. Keynes in his support for capitalism argued that the workers should not be assisted to rise above the capitalists because capitalists who consist of intellectuals are the quality of life and they carry seed of achievement.   Keynes argued against socialism where the government owns the production. Keynes in support of capitalism advocates the governments to support monopoly.   The wage freezing policy by the federal government in Middle East helped increase the profits of the monopolies while lowering the living standards of the workers. Keynes argue that inflation bring about equilibrium position I n capitalism.   In Capitalism â€Å"Boom lead to increased profits and hence increased prices.   Production expands up to overproduction point where equilibrium is achieved through â€Å"boom bursting. 2. What is the `identification problem` in using econometric analysis? Identification problem in ecometrics involves solving unique values of the parameters of the structural model from the values of the parameters of the reduced form of the model.   Reduced form of a model presents a model where endogenous variables are expressed functions of exogenous variables. For example prices in a marker are determined by supply and demand, hence must establish the demand and supply functions.   However, the equation obtained by regressing quantity on market price cannot be identified specifically as either supply or demand function.   In special cases, we use regression to get demand function.   While holding supply function constant or vice versa, but cannot obtain regression while accommodating fluctuation changes in both (Baqliano and Bertola, 2003).