Lecture notes for 4/2/99

Political economy:  study of relationships between politics and economics &
          governments and markets
The government promotes businesses by advertising.  Cities try to attract businesses using
     advertising techniques such as billboards.
Relationships between private and public sectors always an issue for economists.

Free-market economic system:  an economic system in which individual choices by
          consumers and firms determine what shall be produced, how much, and for whom;
          relies on voluntary exchanges in the marketplace
Supply and demand
     -Supply:  the amount of product made
     -Demand:  the willingness of the people to purchase the product
Inflation:  general rise in the overall cost of goods and services
Recession:  general decline in economic activity
Growth:  general increase in economic activity
Gross Domestic Product (GDP):  an estimate of the overall cost of all goods and
          services produced by a nation in its own borders
Gross National Product (GNP):  an estimate of the overall cost of all goods and
          services produced by a nation distributed throughout the world

Classical Economic Theory:  a school of economic thought that focuses on
          economic efficiency and presumes that the forces of demand and supply will
          automatically adjust to restore stable prices after a brief period of inflation
     -Adam Smith
          -Wrote The Wealth of Nations (1776)
          -Believed in laissez-faire (meaning "hands-off") and a free-market economic system
          -The market was basically a tool of government.
          -Economic liberalism (Classical economic theory) is a key part in the development of
               political liberalism.

Keynesian Theory:  a school of economic thought that calls for government
          intervention to control recessions and inflation
     -John Keynes recognized the free-market economic system, but instead, the goverment should 
          tinker with the economy during times of recession and growth.
     -The theory is a short-term plan.
     -The U.S. used this theory in 1938 after the Great Depression.
     -1932 presidential election
          -Basically a duel between classical economic theory and the Keynesian theory
          -The Keynesian Theory won, led by Franklin D. Roosevelt.

Rationing:  government restricting the allowance of food or provisions
Employment Act of 1946
     -Federal government will do everything possible for the populus to remain employed.
     -The government might need to incur deficits in order to counter recessions.

Stagflation:  high inflation and high unemployment at the same time
Supply-side economic theory:  Keynesian in nature, but rather, it focuses on
          economic growth and argues that government taxing and spending are detrimental
          to such growth
     -Long-term growth and investment
     -Minor fluctuations are not serious problems and government should not try to fix the
          fluctuations.
Trigonal economics allow people with money to invest.  These people, as a result, receive tax
     benefits in return.
Voodoo economics is a type of economics that criticizes the trigonal economics, saying that
     it doesn't work.
     -The rich get richer, the poor become poorer, and the middle class shrinks.

The failure side of supply-side economics in the 1980's include:
     -Failure of cutting spending
     -The belief that tax decreases would actually increase revenue and encourage growth
          did not work out.
Monetarist economic theory:  a school of economic thought that argues that
          economic stability can be achieved only by holding the rate of monetary growth to the
          rate of the economy's own growth.
     -Basically, the money supply growth or contraction must parallel the economic growth or
          recession.
     -Since money is a political function, the government controls how much money is out
          in the public at one time.