Question

a) Summerize the two schools of macroeconomic theory

b) what is the primary difference the two macroeconomics approaches

c) what are primary criticisms of each macroeconomics approach

Answer 1

The two schools of macroeconomics theory are:
Austrian school: it theorizes the subjective choices of the individuals including their knowledge, time expectations and many other subjective factors which cause the economic phenomenon. It understands the economy by analysing the ramifications of social and individual choices. It totally differs from any other schools of economics which focuses more on aggregate variables and equilibrium analysis, especially the societal groups and not on the individuals.
Chicago school: it is basically connected with the freshwater schools of macroeconomics, in contrast to saltwater schools which are based on the costal universities. It is heavily based on the concepts of rational expectations. The main elements of it are that the free markets can best allocate the resources in the economy and government intervention is best for the economy.
Both of them are considered to be “neoclassical”, but for practice, the Chicago school is more accurately non-Keynesian while the Austrian school is mandatorily anti-Keynesian and properly consistent with the classical economics based on Adam Smith.
They both are not basically bothered by the major areas of liberal neoclassical beliefs that the competitive theory is not at all a good representation of the reality and unlike the liberal school they both seek very few reasons for extending the scope of government activities beyond the protection of existing market power system.