Economics Summer Work
Important Economic Ideas and Thinkers
WHAT IS ECONOMICS?
Economics is the social science that studies economic activity to gain an understanding of the processes that govern the production, distribution and consumption of goods and services in an exchange economy. Put briefly, economics is the study of making choices and concerns itself with questions like:
- What should be produced?
- How much should be produced?
- Who should produce it?
- Who should get it? What price should be charged for it?
- Who should benefit from it?
- etc, etc, etc
There are key thinkers who have contributed greatly to the development of economic ideas and underpin different schools of thought. You are to investigate some of these key thinkers and the impact they continue to have. You will need to write a paragraph on each section [Do not copy and paste – I want to see that you can understand and use information].
1. ADAM SMITH: THE FATHER OF MODERN ECONOMICS – In “The Wealth of Nations” Smith investigated many ideas that still underpin economic thought, especially about specialisation and exchange, and the working of the market; he introduced the idea of ‘the invisible hand of the market’.
a. What did Smith say about specialisation and exchange in an economy?
b. Explain what Smith meant by the ‘invisible hand of the market’.
2. NEO-CLASSICAL ECONOMICS: the fundamental ideas of microeconomics are still dominated by neoclassical economic ideas. Neoclassical economists argued that people make decisions in a particular way and that economies then responded to this behaviour to find the optimum solution to a problem.
a. What are the fundamental ideas of neo-classical economics about how markets work?
3. JOHN MAYNARD KEYNES: Keynes ideas built on the idea of the economic or business cycle and he is considered to be one of the founders of modern macroeconomics. His work in the 1930s overturned the ideas of many neoclassical economists and governments around the world followed his ideas.
a. What are the fundamental ideas (specifically about macroeconomic policy) that an economist who believes in the Keynesian economics believes in?
b. Why did the impact of Keynes wane in the 1970s?
4. MILTON FRIEDMAN – As a leader of an influential group of thinkers at the University of Chicago School of Economics he challenged what he described as “naïve Keynesianism” and introduced monetarism to the world; ideas that were most fervently followed by Ronal Reagan in the USA and Margaret Thatcher in the UK.
a. What were the main criticisms of Keynesian economic ideas made by Friedman and his supporters?
b. What are the important ideas that form the heart of what it means to be a believer in monetarist economics?
Today, as is often the case, whilst there are still people who are fervently neo-classical, Keynesian or Monetarist economists; most have combined elements of all three and have a more eclectic set of economic beliefs.
Additional Reading.
To be successful in economics you are required to have good knowledge of recent developments or features of the economy, e.g. the current rate of inflation, unemployment figures, economic growth, the performance of large firms within the UK etc. In addition, you are required to have a critical understanding of current problems and issues in the economy, e.g. lower productivity rates in the UK compared to our closest competitors or widening inequality within the UK.
This knowledge and understanding is best acquired from reading the business sections of quality newspapers, on-line sources such as the BBC Business and Economics sections, publications such as the Economist and the watching of current affairs programmes on TV.