Question

Compare the features of the classical economic model to the Keynesian economic model. How do these models influence the aggregate demand curve and the aggregate supply curve? Which model, in your opinion, benefits the economy in the long-run?

Answer 1

The significant distinction is the role the federal government plays in each. Classical economics is essentially free-market economics, which maintains that government involvement in handling the economy must be restricted as much as possible. Keynesian economics upholds the view that the government must take an active function in handling the economy, particularly in depression/recession like durations.

Adam Smith is commonly acknowledged as the founder of the classical school of thought while

the founder of the Keynesian school is, obviously, John Maynard Keynes.

This distinction causes various conclusions about economic phenomena, some of the more important ones are:

Joblessness: The reasons for joblessness are seen in a different way. Classicists believe joblessness is brought on by supply-side elements (the level of investment, the level of capital, the performance of labor, etc). Keynesians put a higher focus on falling need as a reason for unemployment.

Salaries and Prices: Classicists think salaries and costs are flexible and so in the long term, the economy will keep complete work, full work meaning any person searching for a job can find one. Keynesians maintain that salaries and prices can be sticky and for this reason, an economy can find itself in a scenario where there is less than complete work for substantial periods of time.

Rationality: Classicists believe that people are logical and make economic decisions that can be described as enlightened self-interest. Keynesians argue that in tough times, people succumb to unreasonable worries that overwhelm practical decision making. This might result in falls in customer confidence that might last a very long time without federal government intervention.