Question

1) Give a detailed critique of the Classical versus Keynesian view of the macro-economy. How does this debate apply to the financial markets?

Answer 1

Critical View of Classical Versus Keynesian in Macro Economics

The basic Platform of the Keynesian theory is the general theory of employment, intrest and finance.According to Keynesian theory the industrial country which  rise in the unemployment rate is due to the lack of deman in the economy. The necessity of the reduction of deamnd in the volume of total demmand it adversely affects in total demand of the economy. Keynesian theoy should pointed out to boost up the total demand potential to overcome the problems of unemploybility. In the economic depression stage keynesian theory agrees with the  financial restructing process.

Keynesian theory does not agree with the basic matter in the classical economy. That is utalisation of total employabiltiy is defenitely appeared in the economy but the usages of these total employablity function not the best solution for reconvering in the unemployabiity problems. To utalise the total employablity is some what happend in rare in the economy. This is mainly because of the demand capacity of the economy. The total efficency of any economy is decided by the factors like savings, investment,intrest rate employabilty of the employer and the wages critiera are there.  

In Keynesian theory Saving rate and investment rate completely decided by the factors like intrest rate in the economy. Is there is any change in the intrest rate will effect in the total employability and other factors in the economy. Acccording the Keynesian theory the savings of the employee is not decided by the the intrest rate. Savings always determined the per capita income of the family. The per capital income risen means it increases the saving capacity of that socity. If the changes in the intrest rate fluctuation not mean for saving capacity of the individual. That means the amount which earned by his profession is not determinded by the intrest rate but per capital income is the deciding factors for the same.

Another factors in this theory was total quantity of the investment is not decided by the intrest rate. But there is in belief that in every investment the important factors is the intrest rate. Besides this factos there are other factors like today's economica condition, future concened factors techoloigical innovation are others to be there. So if the intrest rate is higher then the business group will invest more money into the market. But in reverse intrest rate is low then  its hard to invest in the economy.

According the classical theory low wages will not effeft the total productivity. But in keynesian theory if the per capital income of the individual is low means it depress the total buying factors of the individual. To reduce the buying efficency will leads to the cut in the expenses and forcelly reduce the price of the goods and services. That means to reduce the employbility of the country. So the low wages rate will not utalise the total utiltiy of the employability of the country.  

According to Keynesian theory countries economical activities completely depends upon the demand. The necessitiated demand that will help in terms of both goods and services. Adequate increase in the deamnd means it increases the total productivity of the firm.  

According the classical theory distribution createsits own demand. In other terms total productivity in accordance with the deman will creates on the sold out demand in that productivity. They believes that this will be the inevitable part in benefited in the whole economy. While Keynesian theory will discard this theory in totally. According the this thoeory whole things are decided through the necessiated demand.