Theories

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Theorist| Theory (with explanation)| Example | Strength| Weakness| Adam Smith | The Wealth of Nations: Theories of efficiency of free trade and market exchanges unrestricted by government that leads to macroeconomic full employment and microeconomic efficiency.| | Free markets allow competition, there is more choice, consumer sovereignty, full employment, higher GDP, efficiency, and economic growth overall.Smith's relevant attention to definite institutional arrangements and process as disciplining self-interest to widen the scope of the market, accumulate capital, and grow income.Smith's allowance for wage increases in the short and intermediate term from capital accumulation and invention added a realism missed later by Malthus, Ricardo, and Marx in their propounding a rigid subsistence-wage theory of labour supply.| Letting the market take its own course would result in income inequality, small firms going out of business as they would not be able to compete, and there could be external costs such as pollution.It does not account for the fact that the market, left alone to the forces of the invisible hand, will see booms and busts. | Halford Mackinder| Heartland Theory: The heartland theory proposes that a land-based power, not a sea power, would ultimately rule the world.  At the heart or Eurasia, lay an impregnable, resource-rich "pivot area;" and if this pivot area became influential in Europe, a great empire could be formed.  So (1) who rules East Europe commands the Heartland, (2) who rules the Heartland commands the World Island, and (3) who rules the World Island commands the World.| United States has also been using the Heartland Theory in their guidelines in foreign affairs. The US has military bases all over the world and has kept good allies with Saudi Arabia and Kuwait which keep a United States influence in the Middle East, close to the Pivot Area. Having military presences in Afghanistan and the Iraq War gave the United States even more power in an area that is dire to having control of the Heartland.| The geographical features of the globe, in large measure, is seen as defining the nature of this world struggle, defining the opposing sides, and defining the areas of conflict. Defeat and victory would hinge on the "pivot-state"; the state in control of the "heartland" of the "world-island".| Nationalism: Writing in an era where national strength was determined by the extent of one's imperial possessions, how so vast an empire as the world island could be controlled and exploited over the long term, appeared to not have been taken fully into account.| John Maynard Keynes| Keynesian Economics: An economic theory stating that active government intervention in the marketplace and monetary policy is the best method of ensuring economic growth and stability.| After 1941 the US converted to a wartime economy with massive government spending that was unprecedented at the time.  For example, government spending increased from $13.5 billion to $35 billion in 1942. The period before the War already illustrates perfectly the effect of Keynesian policy with the respite from it in 1937 and 1938 acting as a control on what could be considered an experiment.  The economy improved when Keynesian policy was implemented and it flat lined when the policy was withdrawn. | The government will be able to implicate policies such as monetary and fiscal policies to lower the effects of changes in the business cycle.| Government intervention will result in lower efficiency due to less competition, and it would result in businesses relying on the government to sort out the bumps in the business cycle.Fundamentally "collectivist" approach, that such theories encourage centralized planning, which leads to malinvestment of capital, which is the cause of business cycles| Thomas Malthus| Malthusian Catastrophe: A Malthusian catastrophe is an event which results from a period of unchecked population growth....
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