Question

What would you say are the key differences between classical-type economics and Keynesian-style economics? Which theory (Keynesian or Classical) would you think would be most useful in a major recession? Explain.

 

Answer 1

There are the major differences between classical and Keynesian economics views which are as follows -

1. Classical economist follows supply side economics and they said that supply creates it's own demand while Keynesian economist follow demand side policies.

2. Classical talked about full employment in an economy while Keynesian talked about underemployment . They said that economy will experience underemployment situation.

3. Classical economist talked about long run but Keynesian says that it is a short run phenomenon because in long run we all are dead .

4. Classical economist focus on monetary policy while Keynesian economists focus on fiscal policy .

5. Classical economist said that there is no need of government intervention in the market while keysian economist said that government intervention is must.

Keynesian theory is most helpful to cure the recession instead of classical theory because Keynesian are more focused on government intervention in an economy while classical economist said that there is no need for government intervention .if there will be any problems occur in market it will restore by demand and supply mechanisms but recession can be cure by government intervention by raising the government expenditure and reducing taxes. So Keynesian fiscal policy is more reliable to cure the recession .