MACROECONOMICS ASSIGNMENT
#1A
1.Adam Smith: He was an 18th century economist praised as the father of modern
economics. He proposed the theory of invisible hand that states free markets tend to regulate
themselves. He also created the concept of GDP.
2.David Ricardo: Discovered key concepts like law of diminishing marginal returns,
taxation, labor theory of value and theory on wages and profit.
3.Thomas Malthus: Proposed principle of population that states population will keep
expanding unless deterred by famine, disease or depression. Devised the Malthusian Growth
model.
4.Karl Marx: Famous for theories on communism and capitalism. Marx’s work is the
foundation for many communist leaders in the world. His work communist manifesto reflects
on society and politics.
5.John Stuart Mill: Formulated principles of political economy that combine philosophy and
economics stating that the growing population deters economic growth. He is also the creator
of utilitarianism.
6.John Maynard Keynes: He is a British economist who overturned the myths of free
market that they offer jobs to those who needed it. Keynesian theory is used to increase
government expenses and lower taxes.
7.Jeremy Bentham: Created classic utilitarianism and introduced legal and social reforms
and said that actions should be adjudged good or wrong based on the utility they provide
humans.
8.William Petty: Introduced assessment of land, wealth, income. He created a transaction
free economic system.
9.Alfred Marshall: He brought the ideas of marginal utility, supply and demand and costs of
production into a coherent whole.
10.Francois Quesnay: French economist who devised the Tableau economique that explains
how a national economy works. Trade and industry were not sources of wealth under this but
agri surplus.
11.James Tobin: Formulated theories on investment behavior that gives us insights about
financial marketing. He also won a Nobel Prize for the same.
12.Friedrich Hayek: He believed that entrepreneurial thoughts and innovation shaped the
prosperity of a country and this could only be achieved in a free market.
13.Robert Owen: Founder of utopian socialism that stated profit must not be the ulterior
motive but that every worker must be paid what they were worth. He also believed that
industrialization has led to widening of social classes.
14.Friedrich Engels: He is the father of modern communism. He believed that conflicts in
society were due to struggles between social classes. The wealthiest people owned means of
production.
15.John Locke: Development of liberalism. He spoke about limiting the powers of the
government.
16.David Hume: Hume’s theory states that causes and effects are discoverable not only by
reason but by experience. H wrote about human understanding and principles of morals.
17.James Mill: Principles of political economy, wrote history of British India, and divided it
into three parts
18.Leon Walras: Framed the marginal theory of value and equilibrium theory . He gave
meaning to utility.
19.Milton Friedman: Heavily researched consumption analysis, monetary history. Wrote
about natural rate of unemployment.
20. Carl Menger: He rejected the famous theories of classical economist and suggested the
theory of marginalism that individuals make decisions based on additional utility that they
receive.
21.Frédéric Bastiat: Praised as the most brilliant economist that has ever lived. He wrote in
favor of free trade.
22.Edmund Burke: He is the founder of modern conservatism. He believed that the concept
of natural rights were too abstract. And that rights were to be assessed using social
frameworks.
23.Henri de Saint-Simon: He was a French businessman who foresaw industrialization and
believed that science and technology could save the world.
24.Thomas J Sargent: Won a Nobel prize in economic sciences. Written about interpreting
instabilities in manifestations of theory of money and unemployment.
25.Robert Solow: Created the SOLOW model that explains economic growth in the long run
by taking into account population, productivity and capital.
26.Robert Lucas Jr.: American economist who found that individuals will offset monetary
policies by making decisions based on experiences.
#1B
1.a. Why is the “great depression” so important in the annals of the world economic
history?
The great depression that lasted from 1929-1939 caused one of the worst recorded
economic slumps that shrank by 50% causing entire international trade to collapse. From the
video we understand how the mid-1920s was perceived to be a period of economic boom.
This was a period where every middle-class man wanted to become rich instantly and this
was reflected in the automobile industry where 1 in 5 Americans owned a car. The American
stock market famously dubbed as Wallstreet was previously deemed as an “elites only” club.
But when Government made their bonds (war related) available to the general public,
everyone seemed to be fascinated by the making a fortune overnight story. Seeing this trend,
bank started lending money to people for investing in stocks which led to the beginning of
credit policies. Because of the availability of loose credit, customers were building up on high
risk debts. But when the bubble was crashed, it led to bankruptcies and failure of more than
3000 banks, unemployment and macroeconomic catastrophe. Thus, the Great Depression was
important in terms of entry of retail investors into market and birth of credit policies.
b. What were the main reasons that precipitated the booming economy into “great
depression”?
When investors withdrew their funds, it led to the failure of banks that were
functioning on credit policies. This led to people’s confidence in the banking
institutions who wanted to withdraw their money thereby leading to less money
supply.
Persistent droughts in agricultural lands thus reducing outputs and revenues
Decrease in production and manufacturing that led to unemployment and less wages.
Firms and families defaulted on loans
2. The Great Depression in US began in the 3rd quarter of 1929 and ended in the 1st
quarter of 1933. The industrial production declined 46.6% during this time period.
Despite the dismal economy and rising unemployment, President Hoover of US was
unable to take any economic measures to stem the situation. Explain the economic
rationale behind his apparent inaction based on the contemporary economic view
prevalent at that time.
Hoover failed to identify the severity of the economic crisis. As a person supporting
capitalism and individualism, he feared that federal intervention would threaten capitalism.
He believed that the market should not be intervened with and must be function by itself. He
had also rejected many bills that could have provided necessary aid to starving Americans.
This led to mass outrage as people ran out of food and were forced to live in small buildings
mimicked as Hoovervilles. Consequently, he lost in the next presidential election.
3. Which American President said “Business of America is business”? In what context
did he say so?
“Business of America is business” was quoted by President Calvin Coolidge. This
reflects the pro-business policies adopted by him and his party and how he supported free-
enterprise system with little intervention and low taxes.
4a. What is meant by “painting the tape”? Is it a legal practice now?
It is a malpractice adopted by the stock market wherein players buy and sell security
among themselves to create an illusion of having created good trading activity. Here, price is
indirectly increased by increasing volume of security. This happens in a shorter period
compared to daisy chain
4b. What is meant by “Daisy chain” and “circular trading” in stock market parlance?
Daisy chain is another financial malpractice wherein a group of investors increase the
price of stocks directly to show an illusion of upward trend to make profits. This occurs on a
longer period compared to painting the tape. In essence, Both daisy chain and painting the
tape are similar for inflating prices.
Circular trading is a fraudulent practice in which investors use prior knowledge and
enter same number of shares at the same price to inflate prices by creating an illusion of
increased security volume.
5. The above video states that in the wake of depression and the financial crisis,
President Roosevelt set up the 1st Securities and Exchange Commission to regulate the
excesses of Wall Street. He named his old friend and supporter Joe Kennedy as its first
Chairman. Critics argued that it was like putting the fox in the chicken coupe.
a. Who was Joe Kennedy better known as?
Joseph P Kennedy was the first chairman of SEC, and the father of all three
Kennedys. He is known for involving in unethical practices to create wealth for his family.
b. Why did the critics made such statement against him?
Joe Kennedy was rumored to have gained wealth by fraudulent practices like
manipulation before the onset of the Great Depression. Which is why people feared that
electing him as the Chairman after the depression was a risk.
