Economists usually split down the total spending into four major headings when researching the course of fluctuations or evaluating policy proposals: (a) consumption expenditure; (b) capital formation for new buildings, equipment and inventory additions; (c) government expenditure on goods and services; and (d) net foreign balance. They would argue that jobs would be generated by increased spending. However, the issue of whether such assertion still holds.
Olatunji Shobande
To the best of my knowledge, both Okun's Law and Phillip's Curve are still valid.
I think The General Theory of Employment, Interest and Money of John Maynard Keynes of providing support for government spending is still valid. This theory introduced the concepts of the consumption function and the principle of effective demand and liquidity preference. Keynes denied the concept that an economy would automatically correct itself to provide full employment even when the economy is in equilibrium.
Traditional understanding of how the economy works has increasingly been questioned since the 2008 financial crisis. For example the huge amounts of quantitive easing which have been employed have resulted in little stimulus to the real economy. By converting long term assets into central bank reserves held by banks the expenditure in the economy should have increased enormously. The effect on employment should have been large, but it was minor. The central rationale of monetary policy, that prices are dependent on money supply is not reflected in economic reality when you have low inflation and economic stagnation. Increasing money supply should result in demand exceeding production resulting in an increase in output and prices. In your question, you phrase the problem in terms of how the accounting is done. How you decide to categorise economic output tells you very little about the relationship between output and employment. The problem is in the underlying macroeconomics. I think the evidence is strong that traditional tools for macroeconomic management do not work in the way they did between the introduction of monetarist economic policy in the 1980s and the early 2000s.
John F. Pinfold Thank you for your clarification, but I like to ask if the money in circulation can be accounted for by the central banks? It is necessary to know the degree to which the supply of money can be productive in this respect.
The relationship between employment and total expenditure hold though the channels might differ. We have seen many innovations that might bypass the traditional measurement instruments. In economics, the instrumentation and scaling need to be updated to check for reliability and validity of measurement.
It can be said that the issue of total spending in any country represents those expenditures contained in the financial budget that include, among other things, the issue of employment.
📷
Refer this link for detail response: https://opentextbc.ca/principlesofeconomics/chapter/21-4-what-causes-changes-in-unemployment-over-the-long-run/
- Badges
- Science topic
- Similar topics
- Physical Sciences
- Atomic, Molecular and Optical Physics
- Atoms