Module 5 Case Assignment
ECO 202: Macroeconomics
Dr. Radu Munteanu
25 July 2014
I will compare the policies that both Hayek and Keynes advocated about how the federal government should manage the economy. In addition, I will discuss Monetarist, New Keynesian, New Classical, Classical theories and provide give real-world events that counters and supports each theory. In the end, I will say whom I agree with and why.
While the United States was experiencing depression, Keynes' theories evolved during the 1930's. "The General Theory of Employment, Interest, and Money" was published by Mr. Keynes. Keynes theorized that the explosion of unemployment would probably be caused by a deficiency due to the demand for production of goods or services. Mr. Keynes' theory made people look at the economy in a macroeconomic sense, more on a larger national level. During the 1930s was when Mr. Friedrich August Hayek's theories evolved. Mr. Hayek wrote various articles on the economic times during the 30's and 40's. Mr. Hayek believed the market was spontaneous and needed to be a free market. He believed that false money supply caused unemployment. He also believed that not only would the money supply drive down interest rates but cause a false investment as well.
The evolvement of these two theories occurred during difficult economic times. They both had macroeconomic views regarding issues; however, they were especially interested in the unemployment issues. The differences came in finding solutions to overcome the depression. Mr. Friedrich August Hayek believed in a hands-off approach. He believed a free market would auto –correct the false investment made. I believe he the individuals know how to invest better than economist and should be held accountable. Mr. Keynes differed from Mr. Hayek in that he believed the market...