Learning Objectives:
A Walk Through the 20th Century and Beyond
LO1: Understand why neoclassicists believe the economy will automatically achieve full employment equilibrium
LO2: Understand why Keynesian economics challenged accepted beliefs on curing economic depression and maintaining prosperity
LO3: Understand the evolution of the Welfare State and the rise of Supply-sider economics
CHAPTER 13
13-1© 2012 McGraw-Hill Ryerson Limited
Keynesian Economics after WWII
• concensus that the Great Depression should never be allowed to happen again
• foundation for “the welfare state”– family allowances, old age pension, health care
funding, employment programs• economies were “managed” by governments using
countercyclical fiscal and monetary policies• public sector grew significantly, and the economy
prospered
13-2© 2012 McGraw-Hill Ryerson Limited
LO3
Supply Side Economics
• 1973 Organization of Petroleum Exporting Countries (OPEC) angered by– falling value of the dollars received for oil – the West’s support of Israel during the Yom
Kippur War• responded by reducing oil exports• prices quadrupled in less than 16 months • caused stagflation – increase in both inflation and
unemployment
13-3© 2012 McGraw-Hill Ryerson Limited
LO3
Supply Side Economics
Major Policies 1. Privatization of crown corporations
2. Deregulation of industry
3. Contracting-out of government services
4. Reduction of tax rates
13-4© 2012 McGraw-Hill Ryerson Limited
LO3