Question

Post-Keynesian economists contend the contemporary neoclassical synthesis is not only seriously flawed but also incompatible with Keynes’s ideas. Discuss. On what points do the new Keynesians disagree with the post-Keynesians?

- Government Intervation

- Unemployment

- Financial instability

- Market Coherence

- Equilibrium in Economics

- Money

- Labor

- On what points do the new Keynesians disagree with the post-Keynesians

Answer 1

QUESTION-1

GOVERNMENT INTERVENTION-

Keynesian school of economics believed that there is an important role of government,post Keynesian economist believed that at the time of depression and economic crisis only government would come forward and can help the economy to recover.

neo classical economist believed that market should be set free and there should not be any government intervention,and thus economy would be able to work at a full extent.

QUESTION-2

UNEMPLOYMENT-

post Keynesian economist believed on the concept that there is three level of employment

• under full employment
• full employment level
• overfull employment

government has different plans for each steps.

Neo classical economist believed that economy is at full employment level and any unemployment is for a shorter period.

QUESTION-3

FINANCIAL INSTABILITY-

• post Keynesian economist believed that in different case of economic situation as well as crisis there would be different fiscal tools in the government side such as fiscal policy ,spending and taxation rates.
• neo classical economist believed that any financial instability would be corrected by the rate of interest in the economy.

QUESTION-4

MARKET COHERENCE-

• the post Keynesian theory is stable and coherent in short run.
• neo classical theory is stable and applicable in long run.

QUESTION-5

EQUILIBRIUM IN ECONOMICS

• post Keynesian economist believed that economy can shift and reach to a new equilibrium point.
• neo classical economist believed that the economy would always be in equilibrium and if there is any disequilibrium the economy would be restored to equilibrium at previous level.

QUESTION-6

MONEY-

post Keynesian represents the concept given by JM Keynes that demand for money is for three purpose

• transaction demand
• precautionary demand
• speculation demand

neo classical economist represents the neutrality of money.

QUESTION-7

LABOR-

• post Keynesian presented the concept of labor concerned with the income and employment level.they believed that there can be unemployment and labor would be employed when there is an increase in demand and thus the level of income would increase through the wages.
• neo classical economist presented that there is wage price flexibility in the economy and due to the demand and supply concept the wage rate and equilibrium would restore to earlier labor due to the demand and supply of labor.