EXAM QUESTIONS
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Course |
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Philosophy
of Management Science |
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Lecturer |
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Prof.
Dr. Ir. H. Fachrurrozie Sjarkowi, M.Sc. |
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Student |
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NIM |
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01023622328001 |
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Name |
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Study
Program |
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Doctoral
(S3) Management Science |
- Before the dissertation research title is made, it is very important to study the literature in order to ascertain the theoretical conception of what scientific paradigm, as well as what scientific arguments are available in the literature related to a research problem that has been formulated. What about your dissertation research plan? State your answer in 3 to 6 paragraphs about the ontological-axiological-epistemological side of the contents!
- After the relevant theoretical conceptions have been collected and ready to be utilized, what scientific law will be used as the basis for theoretical analysis, as well as the last scientific step before you can find a new original scientific argument from your research, one nobelty your contribution.
John
Maynard Keynes (1883–1946) was an English economist, best known as the founder
of Keynesian economics and the father of modern macroeconomics. Keynes attended
one of Britain's most elite schools, King's College at the University of
Cambridge, earning a bachelor's degree in mathematics from the latter in 1905.
He excelled in mathematics but received almost no formal training in economics.
Keynesian
economics is a macroeconomic theory of total expenditure in the economy and its
effect on output, employment and inflation. It was developed by British
economist John Maynard Keynes during the 1930s in an attempt to understand the
Great Depression.
The
main belief of Keynesian economics is that government intervention can
stabilize the economy. Keynesian theory was the first to sharply separate the
study of economic behavior and individual incentives from the study of broad
aggregate variables and constructs.
Based
on his theory, Keynes advocated increased government spending and lower taxes
to stimulate demand and pull the global economy out of the Depression.
Furthermore, Keynesian economics is used to refer to the concept that optimal
economic performance can be achieved—and economic downturns can be prevented—by
influencing aggregate demand through economic intervention by governments.
Keynesian economists believe that such interventions can achieve full
employment and price stability.
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Understanding
Keynesian Economics
Keynesian
economics represents a new way of looking at spending, output, and inflation.
Previously, what Keynes called classical economic thought held that cyclical
changes in employment and economic outcomes created profit opportunities that
would encourage individuals and entrepreneurs to pursue them, and in so doing,
they corrected imbalances in the economy.
According
to Keynesian construction of this so-called classical theory, if aggregate
demand in the economy falls, the resulting weakness in production and
employment will lead to falling prices and wages. Lower inflation and wage
rates will encourage employers to invest capital and hire more people,
stimulate employment and restore economic growth. Keynes believed, however,
that the depth and persistence of the Great Depression greatly tested this
hypothesis.
In
his book The General Theory of Employment, Interest and Money and other works,
Keynes challenged his classical theoretical constructs, arguing that, during a
recession, business pessimism and certain characteristics of the market economy
exacerbate economic weakness and cause aggregate demand to fall further.
For
example, Keynesian economics disproves the idea held by some economists that
lower wages restore full employment because the demand curve for labor slopes
downward like any normal demand curve.
Likewise,
poor business conditions may cause firms to reduce capital investment instead
of taking advantage of lower prices to invest in new plant and equipment. This
will also have the effect of reducing overall spending and employment
Keynesian
Economics and the Depression
Keynesian
economics is sometimes referred to as "depression economics," because
Keynesian General Theory was written during the great depression — not just in
his native England, but worldwide. The famous 1936 book was informed by
Keynes's understanding of events that emerged during the Great Depression,
which Keynes believed could not be explained by classical economic theory as he
described them in his book.
Other
economists argue that, after a widespread economic downturn, businesses and
investors who take advantage of lower input prices to pursue their own
interests will return output and prices to a state of equilibrium, unless this
is prevented. So. Keynes believed that the Great Depression seemed to
contradict this theory.
Output
was low, and unemployment remained high all along. The Great Depression
inspired Keynes to think differently about the nature of economics. From these
theories, he establishes real-world applications that could have implications
for a society experiencing an economic crisis
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Keynes
rejected the idea that the economy would return to its natural state of
equilibrium. Instead, he argued that, once an economic downturn sets in, for
whatever reason, the fear and gloom it creates among businesses and investors
will tend to be self-fulfilling and can lead to periods of depressed economic
activity and unemployment.
In
response to this, Keynes advocated a countercyclical fiscal policy in which,
during periods of economic downturn, the government had to engage in deficit
spending to make up for reduced investment and increase consumer spending to
stabilize aggregate demand.
Keynes
was highly critical of the British government at the time. The government greatly
increased welfare spending and raised taxes to balance the national books.
Keynes said that this would not encourage people to spend their money, thus
leaving the economy unstimulated and unable to recover and return to a state of
success.
Keynes
proposed that the government spend more money and cut taxes to change the
budget deficit, which would increase consumer demand in the economy. This will,
in turn, lead to an increase in overall economic activity and a reduction in
unemployment
Keynes
also criticized the idea of excessive savings, except for certain goals such as
retirement or education. He saw it as harmful to the economy because the more
money that stagnated, the less money in the economy stimulated growth. This was
another Keynesian theory aimed at preventing deep economic depressions.
Many
economists criticize Keynesian approach. They argue that businesses that
respond to economic incentives will tend to return the economy to a state of
equilibrium unless the government prevents them from doing so by disrupting
prices and wages, making it appear as if the market is self-regulating.
On
the other hand, Keynes, writing when the world was mired in a period of deep
economic depression, was less optimistic about the natural balance of markets.
He believed that the government was in a better position than market forces
when it came to creating a strong economy.
Keynesian
Economics and Fiscal Policy
The
multiplier effect, developed by Keynesian student Richard Kahn, is one of the
main components of Countercyclical Keynesian fiscal policy. According to
Keynesian fiscal stimulus theory, an injection of government spending
eventually leads to increased business activity and even more spending. This
theory proposes that spending increases aggregate output and generates more
income. If workers are willing to spend their extra income, the resulting gross
domestic product (GDP) growth could be greater than the initial stimulus
amount.
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The
magnitude of the Keynesian multiplier is directly related to the marginal
propensity to consume. The concept is simple. Expenditure from one consumer
becomes income for the business which is then spent on equipment, worker wages,
energy, materials, services purchased, taxes, and investor returns. That
worker's earnings can then be spent, and the cycle continues. Keynes and his
followers believed that individuals must save less and spend more, increasing
their marginal propensity to consume to affect full employment and economic
growth.
In
this theory, a dollar spent on fiscal stimulus ends up generating more than a
dollar in growth. This appears to be a coup for the government's economists,
which could provide a justification for a politically popular spending project
on a national scale
This
theory was the dominant paradigm in academic economics for decades. Finally,
other economists, such as Milton Friedman and Murray Rothbard, point out that
the Keynesian model misrepresents the relationship between saving, investment,
and economic growth.
Many
economists still rely on the multiplier-generated model, although most
acknowledge that fiscal stimulus is far less effective than the original
multiplier model suggested.
The
fiscal multiplier commonly associated with Keynesian theory is one of the two
broad multipliers in economics. The other multiplier is known as the money
multiplier. This multiplier refers to the money creation process that results
from the fractional reserve banking system. The money multiplier is less
controversial than its Keynesian fiscal counterpart.
Keynesian
Economics and Monetary Policy
Keynesian
economics focuses on demand-side solutions to recessionary periods. Government
intervention in the economic process is an important part of the Keynesian
arsenal for fighting unemployment, underemployment, and low economic demand.
This emphasis on direct government intervention in the economy has often put
Keynesian theorists at odds with those who argue for limited government
involvement in markets.
Wages
and employment, said Keynesian, were slower to respond to market needs and
required government intervention to stay on track. Moreover, according to them,
prices do not react quickly and only change gradually when policy interventions
are monetarism
If
prices are slow to change, this allows using the money supply as a vehicle and
changing interest rates to encourage lending and borrowing. Lowering interest
rates is one way the government can intervene meaningfully in the economic
system, thus encouraging consumption and investment spending.
The
increase in short-term demand initiated by the interest rate cut revived the
economic system and restored employment and demand for services. New economic
activity then feeds continued growth and employment.
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Keynesian
theorists argue that the economy does not stabilize itself very quickly and
requires active intervention that increases short-run demand in the economy.
Without
intervention, Keynesian theorists believe, this cycle is disrupted, and growing
markets become more volatile and prone to excessive fluctuations. Keeping interest
rates low is an attempt to stimulate economic cycles by encouraging businesses
and individuals to borrow more money. They then spend the money they borrowed.
This new spending stimulated the economy. Lowering interest rates, however,
doesn't always lead to an immediate improvement in the economy.
Monetarist
economists focus on managing the money supply and lower interest rates as a
solution to economic woes, but they generally try to avoid unattached problems.
As interest rates approach zero, stimulating the economy by lowering interest
rates is less effective because it reduces incentives to invest, rather than
simply storing money in cash or substitutes such as short-term Treasurys.
Interest
rate manipulation may no longer be sufficient to generate new economic activity
if it does not stimulate investment, and efforts to bring about economic
recovery may come to a complete halt. This is a type of liquidity trap.
When
lowering interest rates fails to pay off, Keynesian economists argue that other
strategies should be used, especially fiscal policy. Other interventionist
policies include direct control over the supply of labor, changing tax rates to
increase or decrease the money supply indirectly, changing monetary policy, or
placing control over the supply of goods and services until jobs and demand are
restored.
Keynesian
Economics and the 2007-2008 Financial Crisis
In
response to the Great Recession and financial crisis of 2007–2008, the Congress
and the Executive took several steps drawn from Keynesian economic theory. The
federal government rescued debt-ridden companies in several industries
including banks, insurance and automakers. It also involved conservatories
Fannie Mae and Freddie Mac, two major market makers and underwriters of
mortgages and home loans.
In
2009, President Obama signed the American Recovery and Reinvestment Act, an
$831 billion government stimulus package designed to save existing jobs and
create new ones. It includes tax cuts/credits and unemployment benefits for
families; it also allocates spending on health care, infrastructure, and
education.
These
stimulus measures and federal interventions helped the American economy
recover, preventing the Great Recession from becoming another great depression.
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