Theories of Economics (Essay Sample)

Theories of economics
Economics is an essential component of a state to thrive. Economics deals with the science of utilization and production of goods and services. Several theories have been postulated to justify the circulation and balancing of a country’s economics. An example of the theories postulated includes those of John Maynard Keynes and Friedrich A. Hayek which have been applied and had impacts on the economies.
John Maynard Keynes (an economist in Britain) theory argues that the existence of unpredictability among people and in businesses not only compelled people to tame their spending habits but also slowed investment which necessitates the governing body to intervene and restore the economic state of a country. Keynes disagreed with the idea of saving money to enhance business investments. He argued that saving was only viable when the economic conditions were balanced and good (Davidson, 2017,pg 19).
Keynes believed that depressed people would obviously reserve spending thus hurting the economy in a downward movement. Keynes suggested that the application of macroeconomics based on national statistics would enable a government to calculate how much it needed to gas up to increase demand that is effective to obtain all-inclusive employment. He encouraged governments that were in depression were to hire their people in their public sector to create a multiplier effect; to stimulate non-government projects, businesses and other entities hence zeroing in depression (Friedman,1997, pg7.
However, a concern arose in Keynes theory on how the state would fund its public sector projects. He defended his theory that the government would be compelled to request loans from its treasury and operate in deficits rather than operating in a balanced budget and increased tax rates which were derailing effective demand.
The trade cycle theory by Hayek argues inborn interest rates intervene in the resolutions between investors and conservators as time goes by. This happens when there is a divergence in the inborn interest rates in the market thus forcing changes in the investors’ capital. There are unpleasant desires among the conservators and investors as a result. This theory had controversy as it triggered high rates of unemployment and distortion in demand and supply of goods and service as money would be easily obtainable (Hayek,2012, pg13).
Friedrich A. Hayek theory of economics postulates that timely and widespread sharing of information helps individuals to dictate their plans thus improving the economics of a government (Hayek,2012, pg13). This theory was a great achievement of Hayek. He posited that knowledge is very powerful not correct in a world that was key in market prices adjustments. This would contain the peoples’ intentions in the market. As a result of the change of prices in the market, there would be an effect on relative goods and services.
This would aid market controllers to plan and determine their ideas subjectively on the market expectation in line with the current actual conditions. The constant change in market prices were great opportunities for making errors as well as advantageous to entrepreneurs who are always alert to change in information to maximize their profits. This action would correct market prices in relative goods and services that were in scarcity. Hayek posits that those that market operators operate with restricted information are empowered to coordinate their ventures when there are changes in the market.
References
Davidson, P. (2017). John Maynard Keynes. Springer.
Friedman, M. (1997). John Maynard Keynes.
Hayek, F. A. (2012). Hayek on Hayek: An autobiographical dialogue. University of
Chicago Press
Paragraph 2
Do you think the video accurately portrays the two theories? Why? Yes, the video accurately portrays the two theories; John Maynard Keynes theory argues that the existence of unpredictability among people and in businesses not only compelled people to tame their spending habits but also slowed investment which necessitates the governing body to intervene and restore the economic state of a country. Keynes disagreed with the idea of saving money to enhance business investments. He argued that saving was only viable when the economic conditions were balanced and good.
The trade cycle theory by Hayek argues inborn interest rates intervene in the resolutions between investors and conservators as time goes by. This happens when there is a divergence in the inborn interest rates in the market thus forcing changes in the investors’ capital. There are unpleasant desires among the conservators and investors as a result. This theory had controversy as it triggered high rates of unemployment and distortion in demand and supply of goods and service as money would be easily obtainable.
Friedrich A. Hayek theory of economics postulates that timely and widespread sharing of