The Legacy of Keynes Essay Example | Topics and Well Written Essays - 2750 words

The Legacy of Keynes - Essay Example The influence of J.M. Keynes work is immense in the field of economics as he revolutionised economics with his classic book written in 1936, The General Theory of Employment, Interest and Money and changed the way we perceive the role of economy and governments in social life. With the introduction of the theory of income expenditure multiplier in 1931 by Richard Kahn, Keynes worked on the basis of his work which was to bring about revolutionary ideas to the field of economy giving rise to a new branch of economics known as the 'macroeconomics' (Keynes, 1936/1974). In a two volume Treatise on Money published in 1930 Keynes established the Wicksellian theory of the credit cycle in which the initial ideas of the liquidity preference theory of interest are suggested. This has been considered as one of the most important of Keynes contributions along with his ideas on marginal efficiency of investment. The impact of his 1936 book The General Theory of Employment, Interest and Money has been unprecedented not only because of the timing of its publications but also due to its unique approach that brought in a new brand of Keynesian economics (Coddington 1976; 1260; Trevithick 1992). This book was released during the period of the Great Depression and had major political, social and economic impact. Within the general theory, Keynes sought to develop a theory that can explain the formation of aggregate output and employment considering aggregate demand as the determining factor. He introduced certain revolutionary concepts in economics such as the co ncept of demand-determined equilibrium. He also suggested that price flexibility is generally ineffective as a cure to unemployment. Keynes also gave a unique theory of money based on "liquidity preference", and highlighted the role of radical expectations (Trevitihick 1992; Keynes 1936/1974). He worked on the marginal efficiency of investment schedule and taking a detour from Say's Law reversed the savings-investment causation relationship, and also suggested the possibility of government fiscal and monetary policy that can be used to counter the problems of recessions and control economic booms for a balanced and predictable economy.The Keynesian ideas were controversial as they were revolutionary and although Keynes had support of progressive economists he faced severe opposition from traditional ones. The "IS-LM" representation of Keynes's theory initiated the "Neoclassical-Keynesian Synthesis" and became the most popular and dominant form of macroeconomics by the 1960s (Chrysta l et al, 1994; Snowdown et al.1994). The Keynesian synthesis however went through changes in the Post Keynesian era although Keynes' theories were retained in the original forms. Keynes influence was pronounced due to the combined factors of the Depression, post war economy and Keynes revolutionary ideas that changed the way economists perceived or interpreted the role of government and concepts of economic theories (Snowdown et al, 1994). The inflationary gap of the post war era as identified by Keynes led to his emphasis on compulsory savings and setting up of an international commodity reserve. In a later

Oil and Business Term Paper Example | Topics and Well Written Essays - 1500 words

Oil and Business - Term Paper Example International trade slowed, but still rose because of emerging economies, particularly China and India. However, trade has been affected by the recent hike in oil prices. Furthermore, the publication states that fuel products (oil) saw a relatively lower growth than in previous years, which was due to the high prices of oil in the world market. However, Organization of Petroleum Exporting Countries (OPEC) has increased oil demand growth for 2010 (Brock). Oil is a major commodity in international trade and is one of the most influential commodity to impact business, trade and hence, economies. Today, we will analyze the economics of oil, which would include a detailed analysis into oil prices, and its effects on business and international trade. In the international market, price for every good is determined by market forces. The capitalistic system gives freedom to the market forces, and prices are determined by demand and supply. Demand is the willingness of the consumer to buy at a particular price, whereas supply is the willingness of the producer to produce at a given price. For instance, an increase in demand for oil would increase prices, and an increase in supply of oil would contain or reduce prices. Significant growth in countries like China and Brazil has increased recovery prospects, and hence increased demand. Thus, oil prices have been rising. Oil prices have declined since July of 2008 because of a slump in demand due to a severe global recession. This was also one of the reasons why developed economies consumed less fuel than usual. b) Relationship between Oil and the U.S. Dollar Although the price of oil in the international market is determined by market forces, it is also affected by the U.S. dollar. Oil and the greenback share a negative relationship. Traditionally, an increase in dollar value causes a decrease in crude price, and vice versa. People might wonder as to why oil affects the dollar and the other way round, but how come other currencies and oil price are not related. Commodities such as Oil and Gold are traded in the international market in U.S. dollars, and this has been agreed upon by the Organization of Oil-Exporting Countries (OPEC). Before 1971, the U.S. dollar was backed by gold, and changes in price of oil didn't have an effect on producer profits, as gold had intrinsic value. The U.S. Dollar could be liquidated into gold almost immediately. However, after 1971, dollar was made a fiat currency, and was printed without gold backing. This made it easy for the American government to print money, and hence increase supply. In the last 35-40 years, dollar value has declined significantly amid ever-increasing money supply in the U.S. economy. Therefore, when dollar falls (real value decreases), producers ask for more money to compensate the loss in their real value assets, which are based on U.S. dollars. Thus, a decrease in the dollar has pushed oil prices up in the past decade or so. c) The role of the OPEC Besides these factors, the OPEC, which holds two-thirds of the world's fuel reserves, plays a vital role. Refining is done on a large scale in these countries, and they contribute a lot to the world's oil