A comparison of the classical and keynesian thoughts

They stress on the importance of measures like government spending, tax breaks and hikes, etc. Feminist economics criticizes the valuation of labor and argues female labor is systemically undervalued Green economics criticizes externalized and intangible status of ecosystems and argues to bring them within the tangible measured capital asset model as natural capital Post-autistic economics criticizes the focus on formal models at the expense of observation and values, arguing for a return to the moral philosophy in which Adam Smith founded this human science.

Thus, efforts to stimulate the economy would be self-defeating. You'd obviously reduce the prices step by step, in a trial and error manner and finally reach a price that might tempt a buyer to buy. He thus adjusts his wage rates downwards, acting in the overall welfare of society, without knowing it.

Shape of long-run aggregate supply A distinction between the Keynesian and classical view of macroeconomics can be illustrated looking at the long run aggregate supply LRAS. Keynesians therefore advocate an active stabilization policy to reduce the amplitude of the business cycle, which they rank among the most serious of economic problems.

While classical economists believe that savings and investment is triggered by the prevailing interest rates, Keynesian economists believe otherwise.

Frisch, Tinbergen, Paul Samuelson etc. Workers resist nominal wage cuts. By spending less this causes a further fall in demand.

Samuelson puts it as follows: Role of Government Classical economists do not like government spending, and they especially detest more government debt. Keynesian economics does not believe that price adjustments are possible easily and so the self-correcting market mechanism based on flexible prices also obviously doesn't.

Monetarists reject the Keynesian notion that governments can "manage" demand and that attempts to do so are destabilizing and likely to lead to inflation. Adam Smith is a great economist, who is known as the founder of the classical economics school of thought.

Should economic policy be focused on long term results or short term problems. The Keynesian theorists on the other hand, believe that Government intervention in the form of monetary and fiscal policies is an absolute must to keep the economy running smoothly.


They admitted that fiscal stimulus could actuate production. Finally, government outlays need not always be wasteful: It begins with the premise that resources are scarce and that it is necessary to choose between competing alternatives. They believe short-term problems are just bumps in the road that the free market will eventually solve for itself.

The Keynesian theory of interest is an improvement over the classical theory in that the former considers interest as a monetary phenomenon as a link between the present and the future while the classical theory ignores this dynamic role of money as a store of value and wealth and conceives of interest as a non-monetary phenomenon.

Unfortunately, this assumption also does not hold good today, as most economies today are demand driven production is based on demand. They believe that controlling the supply of money directly influences inflation and that by fighting inflation with the supply of money, they can influence interest rates in the future.

An intellectual precursor of Keynesian economics was underconsumption theories associated with John LawThomas Malthusthe Birmingham School of Thomas Attwood[7] and the American economists William Trufant Foster and Waddill Catchingswho were influential in the s and s.

Keynesian vs Classical models and policies

Economics generally is the study of how people allocate scarce resources among alternative uses. One side believes government should play an active role in controlling the economy, while the other school thinks the economy is better left alone to regulate itself.

Keynesian economists also believe that there are certain rigidities in the system, particularly "sticky" wages and prices that prevent the proper clearing of supply and demand. Monetarist economists believe that the role of government is to control inflation by controlling the money supply.

But as one can see, according to classical theories, there is really no need for any government intervention. They are as under: Demand deficient unemployment Because of the different opinions about the shape of the aggregate supply and the role of aggregate demand in influencing economic growth, there are different views about the cause of unemployment Classical economists argue that unemployment is caused by supply side factors — real wage unemployment, frictional unemployment and structural factors.

This fall in confidence can cause a rapid rise in saving and fall in investment, and it can last a long time — without some change in policy. Keynesian economists believe in consumption, government expenditures and net exports to change the state of the economy.

Economists who believe in either of the types of thoughts are at loggerheads about various aspects about the way the economy influences people and vice-versa.

Keynesian vs Classical School Of Thought

Keynesian economists believe that the business cycle can be managed by active government intervention through fiscal policy spending more in recessions to stimulate demand and monetary policy stimulating demand with lower rates.

The Keynesian theory of interest is an improvement over the classical theory in that the former considers interest as a monetary phenomenon as a link between the present and the future while the classical theory ignores this dynamic role of money as a store of value and wealth and conceives of.

a comparison of the classical and keynesian thoughts The Feds 2% Inflation Target Is Pointless / A personal narrative of ones book supporting gender equality Economics an introduction to the essay on the topic of cheat mode / Inflation By: Kelsey_Williams Within the Federal Reserve sometime in Chicago.

Ed Tamplin. A discussion on the stages of human development born in Austria. Comparison and Contrast between schools of thought. Print the classical school of thoughts and the Neo classical school of thoughts. The classical school encompasses Scientific Management of Taylor, Administrative Management of Fayol, and Bureaucratic Organization of Weber.

The basis of contrast and comparison will be ‘the worker. Jun 30,  · Keynesian economic theory comes from British economist John Maynard Keynes, and arose from his analysis of the Great Depression in the s.

Schools of economic thought

The. By Stephen Simpson The field of macroeconomics is organized into many different schools of thought, with differing views on how the markets and their participants operate. Classical Classical. How do I compare classical microeconomics to keynesian thought?

Update Cancel. ad by TruthFinder. Classical economics would argue that any Keynesian intervention does not improve the situation and actually makes things worse, because by definition government intervention pushes the markets out of equilibrium and creates dead weight losses.

A comparison of the classical and keynesian thoughts
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Classical vs Keynesian