Question

Research Friedrich Hayek or The Chicago School of Economics or Austrian Exonomics and compare to Keynes theory

Expalin the general theory comparing to Keynes theories and Explain the benefits and the disadvantages

Answer 1

Austrian economic thought believed in the concept of Free Market. They believed that nature should be allowed to run its course and government should not interven in the economic activities. The economist believes that human and social elements plays an equal important roles in understanding prices, market movements, as well as money and value creation.

Keynesian on the other hand believed that Government are an important marker intermediary.They believed that state intervention, pricing and policy controls are essential tools to controling understanding and predicting market condition.

The general theory is sustained attack on the Classical theory. THe general theory introduced concept like consumption fuction, effective demand, multiplier and marginal efficiency of capital.

Advantages:- There is necessity of government action in the condition of deep recession on the account of market failure.Keynes policies are supporting in coarse-tunning policies for offsetting or avoiding serious aggregating economic problems.In order to reduce high persistence unemployement. Redesigning of the system unemployment compensation with encourages job shirking.

Disadvantages :- Keynesian approach is said to be heavily biased toward theorectical developments and that it has caused a drift of macro economics away from its econometric base.It is elegant but unrelated theories, some new keynesian referred this situation as the construction of too many monsters with few interesting result. Doubt about impact of small menu cost.

Disadvantages:-