Question

Which of the four schools of thought do you think is correct in their understanding and analysis of the economy? Explain.

Answer 1

There are four main schools of thoughts in Economics which are Classical, Keynesian, Neoclassical and Monetarist. Out of these four, I think the best response to the economic analysis can be obtained with the help of a neoclassic school of thought.

In the Neoclassic school of thought it is said that the common individual has some rational expectations and in order to maximize his or her utility, different types of attempts are made. This school of thought further thinks that the individuals take different actions independently depending on the information which they receive from various sources. The neoclassical school has come up with the concepts of marginalism and the concept of maximization of marginal utility. This also includes that the economic agents react to the rational expectations. In this school of thought, the market equilibrium is the always sustaining presumption, the main focus remains on the increasing the supply and how the money supply has its impact on the price levels.

I believe that this model is more practical as we all make decisions in order to have the better utility of our money. Before taking any decision or investment in any opportunity, we always analyse the opportunity cost of various alternatives and we opt for that option which has the maximum returns.