1. Introduction Flashcards
Post-Keynesian macroeconomic approach
Focuses on how aggregate demand (total spending) drives economic growth and employment
- Government play key role in stabilizing economy
- Firms adjust investment based on demand
- Higher demand boost labour productivity and encourages firm to adept new methods
What is economies of scale
Increased demand helps firms achieve cost advantages as production scales up.
Kaldor-Verdoorn effect (PK)
higher economic growth (or demand) leads to increased productivity, as firms become more efficient through
- economies of scale
- learning-by-doing (reinvest their earnings)
According to PK what is the course of stagnation
When savings exceeds investments
- weaker demand
- firms produce less
- slows economic growth
According to PK what will need to happened to stop Stagnation
Banks lower interrest rate, making saving less attractive and making borrowing cheaper = more spending
What is Secular Stagnation
When economic growth slows down, and people/firms save more than they spend
What happened pre fordist period?
- People didn’t earn enough to buy much, so demand was low.
- Businesses couldn’t grow big or produce a lot because there wasn’t enough spending.
- Profits were mostly saved or used for speculation, not reinvested into production.
What happened during fordist period?
- Wages increased along with productivity.
- Higher wages meant people spent more, which boosted demand.
- This demand encouraged businesses to invest and grow, creating a cycle of growth.
- Unions and collective agreements helped ensure workers got fair wages.
Problems during fordist period?
- Higher wages cut into profits, so businesses didn’t want to invest as much.
- In the 1980s, global financial rules changed, making it easier for businesses to move their money to other countries where profits were higher
Why did Wage-Led Growth work?
Limited trade and capital controls kept money and jobs in the country
What Went Wrong with the wage-led growth model:
- Wages grew faster than productivity.
- Companies raised prices → caused inflation.
- The economy hit full employment, so it couldn’t grow more.
- This lead to wages stopped growing, staying flat compared to inflation.
Schumpeterian view on the fordist period
- The model depended on the automobile industry (leading industry)
- Few countries could produce cars due to high barriers to entry (cost, technology). Germany exported to the US
Schumpeterian view on the fordist period (why it didn’t work)
- Market saturation: Most people already had cars.
- Hard to improve productivity further (expensive machines).
- Competition: Japan and South Korea (cheaper cars)
What is a growth model approach?
A way of understanding how economies grow by looking at what drives demand and production
What is Consumption-Led Growth? And which contries use it?
- Growth from borrowing (credit, loans, mortgages).
- Relies on foreign money to cover trade deficits (imports > exports).
- Problem: Unsustainable if borrowing stop
- Used by the UK and Spain
What is export-led growth? And which contries use it?
- Growth from selling goods abroad.
- Needs low wages and a cheap currency to compete.
- Issue: Only export workers see wage benefits → inequality.
- Used by Germany
Which contries uses a mixture of export and consumption? And what is the risk of using that?
Sweden, Denmark and Finland. The risk is here that they don’t have to much to export.
What is a Peripheral Growth Model?
strategies used by less economically dominant countries to grow by integrating into global or regional supply chains. Being supporters
What is FDI-Led Growth and who uses that?
Relies on foreign directs investment into the contries and is used by Ireland and Latvia. Their growth depend on other contries investing in them.
What is Agro-Based Economies, and who uses that?
Rely on agriculture rather than industrial growth. Used by Poland and Ukraine.
What is IPE (International Political Economy)?
IPE studies the global economy, focusing on trade, finance, and international competitiveness.
What is CPE (Comparative Political Economy)?
CPE studies national economies and how their growth models fit into the global system
