Classical Economics And Keynesian Economics - 1898 Words

Modern Economics is divisible into two identifiable schools of thought: Classical Economics and Keynesian Economics. Names such as Adam Smith, Thomas Malthus, Jean-Baptiste Say, among several others are commonly associated with Classical economic thinking; meanwhile, one ‘key’ name associated with the Keynesian model is, as its title suggests, John Maynard Keynes. The goal of each of the two schools of thought is to predict the state of an economy and the appropriate responses of a few chief parties to it. Overall, although there is occasional deference from Keynesian to Classical Economics in some situations, for the most part, these two schools of economic thought differ in their application in real world economics. Before comparison of the applications of both Keynesian and Classical Economics in the AD-AS model, it is important to understand the underlying assumptions of both schools of thought. Classical Economic thought, born out of 18th Century France, maintains t hat the Long Run state of an economy takes non-situational precedence over the Short Run. That is, Classicalism studies the long run potential output capacity and long run natural unemployment rate of an economy. While Keynesian Economic theory, originating during the Great Depression Era, argues for a greater importance on the short sun state of an economy when Classical Economic practice fails. The reason for this fundamental difference is the idea of â€Å"sticky prices.† Classicalists don’t assume prices,Show MoreRelatedClassical Economics And Keynesian Economics1124 Words   |  5 Pagesof Classical Economics and Keynesian Economics has given me the opportunity to form an opinion on this greatly debated topic in economics. After researching this topic in great lengths, I have determined the Keynesian Economics far exceeds greatness for America compared to that of Classical Economics. I will begin my paper by first addressing my understanding of both economic theo ries, I will then compare and contrast both theories, and end my paper with my opinions on why I believe Keynesian EconomicsRead MoreEconomics : Classical Economics And Keynesian Economics1665 Words   |  7 Pagesinteresting as the subject of economics is, it’s a subject that isn’t easily understood. In order to grasp the subject you have to really understand the concepts. And it’s not like riding a bike, once you know how to do it you will always have it engraved in your head. I will attempt to highlight the key factors of the two theories of economics: classical economics and Keynesian economics. Since Classical Economics is considered to be the first school of economics. 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However, in the monetary economy cycle theories, the expected monetary supply changes will not influence the total economy; the unexpected money supply changes will impact the total economic in short term. In the long term, it merely impacts the changes of general price levels, instead of onRead MoreKayne vs Hayek1370 Words   |  6 Pagesbranch of economics dealing with the performance, structure, behavior, and decision-making of the whole economy. Macroeconomists study aggregated indicators such as GDP, unemployment rates, and price indices to understand how the whole economy functions. They develop models that explain the relationship between such factors as national income, output, consumption, unemployment, inflation, savings, investment, international trade and international finance. 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They also believed that â€Å"Supply creates its own demand.† (The early debate on policy atavism) In other words, in the process of producing output, businesses would also create enough income to ensure that all of the output will be sold.