This document discusses key economic concepts such as GDP, GNI, PPP, unemployment, and inflation. It explains John Maynard Keynes' theory that deficit spending by the government can stimulate economic growth by putting money in people's hands to spend and fuel demand. However, this view was later scrutinized due to stagflation in the 1970s. The document also outlines Milton Friedman's view that fiscal policy does not stimulate growth and monetary policy is more important, leading to his advocacy for free market economies, also known as neoliberalism. Exchange rates and their impacts are also briefly covered.

1. POL 252-01
Spring 2016

4. Political Institutions
and Processes
Economic Structures
and Processes
”Z-Variables”:
Geography, Culture, etc

7.  Gross Domestic Product (GDP)
 Gross National Income (GNI)
 Purchasing Power Parity (PPP)
 Unemployment
 Inflation

10. Unemployment
Lowered
Wages
Business
Investment
and Employment
Creation of
Economic Growth

12.  Sound fiscal policy
 Emphasis on deficit
spending
 Borrowing money
 Result?
 People have $
 Purchase goods/services
 Economy reboundJohn Maynard Keynes

13.  Politically Desirable
 New Programs = Re-Election withoutTaxes!
 Scrutinized by 1970s
 Western nations facing stagflation
 Mo Money, Mo Problems?

15. Milton Friedman
 Fiscal policy does NOT
stimulate growth
 Emphasis on monetary policy
 Justification for move to
free-market economy
 Known as neoliberalism
 “Conventional wisdom” until
“Great Recession” of 2008-
2009

17.  Appreciation vs. Depreciation
 Fixed vs. Floating Exchange Rate
 Fixed: Stable currency; International interests
 Floating: Fluctuating currency; Domestic interests