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In: Economics

Discuss how Classical Economists views and Keynesians’ views conflict each other regarding Say’s Law, flexibility of...

Discuss how Classical Economists views and Keynesians’ views conflict each other regarding Say’s Law,
flexibility of wages and prices, existence of self-regulation and the requirement of government
intervention.

Solutions

Expert Solution

Classical economist like Adam smith had belief in the long time period while the keynesian like Keynes had belief in the short time period because they assumed in the long run we all will die. Classical had belief in the Says law . They believe that supply creates its own demand and in economy there is full employment. Government role is laissez faire. If disequilibrium occursit just only for a short time because wages , prices and interest rate are flexible. By automatic change in wages, prices and interest rate ; full employment can be attained.

While Keynes did not believe in Says law. According to Keynes , demand creates its own supply. There is underemployment in the economy due to less demand and induced investment. It is the government who makes use of autonomous investment to increase income, output and employment in economy. Therefore, in Keynes role of government was crucial to bring equilibrium, to remove recession.


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