Applying the keynesian approach of economics to save the decline of the euro

The classical tradition of partial equilibrium theory had been to split the economy into separate markets, each of whose equilibrium conditions could be stated as a single equation determining a single variable.

Applying the keynesian approach of economics to save the decline of the euro

Look, Merkel seemed to indicating to German citizens, German industry is in demand worldwide, even if the government at home is divided and lacking direction.

The German economy has indeed come roaring back to life this summer. Two years after the outbreak of the financial crisis, the auto industry is adding extra shifts once again. The machine building, electronics and chemical industries are all reporting a rapidly growing number of orders.

Total unemployment is expected to drop below the 2. For the first time in decades, the former "sick man of Europe" is back to being an engine for economic growth. In their last prognosis, completed in April, government officials had predicted only 0. Production in the manufacturing industry increased by 5 percent over the previous quarter.

The government assessment also shows that exports grew by more than 9 percent in May. Economists are already proclaiming a second economic miracle, while a former French foreign minister is complaining that Germany is "number one in Europe" once again.

What is 'Keynesian Economics'

The unexpected comeback is the result of an unprecedented large-scale economic experiment. When the economy is in decline, the professor concluded based on the experiences of the Great Depression, the government must quickly counteract the trend with massive government spending programs.

It spent money to allow companies to scale back production and paid consumers premiums to destroy assets with intrinsic value. Streets were repaved only to be torn up again soon afterwards, and schools were renovated and later shut down.

Government debt skyrocketed, but in return companies received new orders, consumers had more money to spend and banks, no longer fearing that their borrowers could soon go out of business, started lending again.

Kept the Economy Afloat The government bailout programs reestablished the basic confidence in economic development that had been lost in the financial crisis.

This is true, for example, of the scrapping premium -- a program similar to "cash for clunkers" in the US. The name alone suggests that it has little to do with conventional ideas of economic prudence. This was nothing but a government incentive to destroy billions in national wealth, and quite a few observers were surprised by the enthusiasm with which Germans took the government up on its offer.

Hundreds of thousands of perfectly functional cars were taken out of circulation, while new car ownership grew by an impressive 23 percent. The biggest beneficiaries were companies like Dacia, Fiat, Suzuki and Kia.

The premium to encourage small car purchases did more than support the economy in the Asian and Eastern European countries where the cars were produced.

This helped companies survive that are now urgently needed by German automakers in the current recovery. Only a Slight Increase in Unemployment The second large-scale program that the government devised to assist companies, the so-called short-time working program, also helped bridge the economic slump.

The legal framework for the program has existed in German social legislation for decades. The goal is to avoid layoffs and retain employees until the recession is over.

In the most recent crisis, Berlin repeatedly enhanced the rule, thereby triggering an economic miracle that attracted worldwide attention.

While the jobless count grew by seven million in the United States, Germany experienced only a slight increase. In return, however, the number of short-time workers rose sharply, until it reached a record 1. Now that the economy is picking up steam once again, Germany industry already has a large reserve of well-trained employees at its disposal to handle the growth in orders, and at minimal cost.

At Munich-based Siemens, for example, the number of short-time employees has declined from 19, last summer to today. Human resources executive Walter Huber says that the situation has eased, and that the federal government deserves the credit: According to an OECD report, the labor market in Germany "has survived the global economic crisis much more effectively than in most other member nations.

Short-time workers have more disposable income than the unemployed, and as a result, German consumers were hardly forced to cut back during the crisis.Keynesian economics continues to reveal its relevance as an alternative to mainstream approaches, as The General Theory of Employment, Interest and Money by John Maynard Keynes reaches its.

Applying the keynesian approach of economics to save the decline of the euro

Classical economics became closely associated with economic, and later political, freedom. Rise of the Classical Theory The classical theory developed shortly after the birth of western capitalism.

China has experienced particularly high rates of economic growth as a result of: The granting of small, unsecured loans to small businesses and entrepreneurs is known as: Microfinance. Nov 30,  · Similarities in “Savings” in Keynesian and Classical Economics; Despite the classical theory, ignoring the fact that saving is a function of income by regarding it as a function of interests rate, the approach acknowledges that people do save for future consumption.5/5(1).

The euro crisis (and thus the Greek crisis) is at its origins a European crisis. And it needs a European solution. The Euro-Keynesian answer is a counter-cyclical European fiscal policy.

Monetary policy would allow higher inflation (to allow rebalancing without strangulating Southern European economies) and would directly finance governments.

Applying the keynesian approach of economics to save the decline of the euro

A Keynesian Success Story Germany's New Economic Miracle During the worst of the global financial meltdown, Berlin pumped tens of billions of euros into the economy and spent hundreds of billions.

Keynesian vs Classical models and policies | Economics Help