Learning Objectives: A Walk Through the 20 th 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 © 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