With the long standing debate between Classical Theory and Keynesian Theory, Please summarize the differences including...

With the long standing debate between Classical Theory and Keynesian Theory, Please summarize the differences including which is more supply (production) orientated and which is more demand (consumption) orientated.

Expert Solution

There is a wide difference between classical and keynesian theory. classicals are more supply(production) oriented and keynesians are more demand(consumption) oriented.

Classicals- they say supply creates its own demand i.e. Say's law. And there is invisible hand i.e. no govt intervention. Market forces equate supply and demand and there are no maket inefficienies. People are rational. Aggregate supply is vertical. There is no glut in the market.

Keynesians - they say demand create its own supply .and there is need for government to remove market inefficienies. There is multiplier effect if you increase demand. It will create more income.aggregate supply is horizontal in short run and vertical in long run. There will be glut in the economy and govt intervention is needed to boost growth through fiscal and monetray policies

Before 1930's classical theory came. After 1930s recession, keynsian theory was put forward by John Maynard Keyns.

Rahul Sunny answered 2 years ago

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