1. We Forgot Everything Keynes Taught Us Robert Skidelsky The Washington Post 19/10/2008

2. 1. Keynesian economics (1) The six principles of Keynesian economics: (1)aggregate demand is influenced by monetary and fiscal policies. (2)changes in aggregate demand have greatest short-run impact on real output and employment. (3)prices and wages respond slowly to changes in supply and demand, resulting in shortages and surpluses. (4)periods of recession/depression are economic maladies. (5)stabilization policy is necessary to reduce the amplitude of the business cycle. (6)unemployment is a more important issue than inflation.

3. 1. Keynesian economics (2) Keynesian economists believe that (1)macroeconomic fluctuations significantly reduce economic well- being, (2)the government is knowledgeable and capable enough to improve upon the free market, and (3)unemployment is a more important problem than inflation.

4. 2. Monetary economics (1)Examine the effects of monetary system, including regulation of money and associated financial institutions and international aspects. (2)Attempt to provide a more micro-based formulation of the demand for money and to distinguish valid monetary relationships for micro or macro uses, including their influence on the aggregated demand for output. (3)Derive and test the implications of money as a substitute for other assets.

5. 3. Monetarism by Friedman (1)Theories based on empirical research. (2)Challenge the basic Keynesian model. (3)Insist on a natural rate of unemployment. (4)Insist on minimizing the role of government in favor of the private sector. (5)Emphasize that monetary policies can prevent depression.

6. 4. Main ideas (1)Introduction: Lack of a economic theory to explain the financial meltdown. (2)The New Economics: concept and achievements. (3)The new “science” of monetary management. (4)Mistakes of the new theories. (5)Government spending and the rescue operations. (6)Conclusion: the new economic theories are misleading for policymakers.

7. 5. Structure: A Critical Essay (1)Introduction (Para. 1-2)—lack of a theory to explain the financial meltdown. (2)Background (Para. 3-7): Keynesian theory and its opponents. (3)Analysis(Para. 8-11): Mistakes of the new theories. (4)Analysis (Para. 14—16): Government spending and rescue opperations. (5)Conclusion—the new theories are misleading for policy makers.

8. 6. Questions for discussion (1)What are the major differences between Keynesian economics and modern monetary economics? (2)Can the rescue operation of the Obama government help the American economy to recover? Why or why not? (3)What lessons can we learn from the global financial market?