Economics thoughts and history Essay Example | Topics and Well Written Essays - 750 words

Economics thoughts and history - Essay Example and real median family income seem to go in different directions, productivity soaring up, with a cumulative change rate of over 300%, while the real median family income going down from 150-100% (Economic Policy Institute, 2012). This situation can be explained using a neo classical framework. The high levels of productivity in relation to lower real income values for median families can have tremendous effects both in the long and short run. In the short run, the middle class, which consists of the majority of citizens, will not have enough income to cater for savings. They will be less motivated to work since they do not feel the impact of their efforts at a national level. In the long run, the demonization of these people would mean productivity is affected. Using the labor theory, the situation captured by the graph has a lot of implications on labor from the middle class in America. In as much as the middle class contributes their labor to the national growth of the economy, they do not reap the benefits. More people will be less motivated to work, making labor a rare factor of production. The cost of labor is bound to increase in the long run. From a Keynesian perspective, the government needs to provide motivation to the middle class by ensuring they also benefit from the increase I productivity. The government can do this by investing in infrastructure and other fixed capital expenditure as well as changing tax laws to reduce the pain felt by middle class families. This will lead to increased productivity and real median family income in the long run. Using the institutional methodology, the situation portrayed in the graph can be remedied by changing institutions that serve the middle class. The cost of services and goods ought to be reduced so as to increase the amount of disposable income among the middle class. The theory of marginal productivity of distribution has various economical assumptions, most of which have highly been criticized. One of