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