Question

Please write an essay that compares how Keynesian theory compares with Neo-classical ideas of how Economies recover from a recession.

Details:

-250 words, 12 font, double spaced, punctuation, spelling, and grammar will be evaluated

Answer 1

            Please write an essay that compares how Keynesian theory compares with Neo-classical ideas of how Economies recover from a recession.

Keynesian Theory

The Keynesian theory, is well backed by governments over the years, to ensuring that recovery from overall recession times can be faster. A recession is a time, when the aggregate demand for products and services in any economy rapidly falls.

If this happens in the longer run, it causes a depression which is extremely tough for countries and may lead to wide spread unemployment which leaves people with lesser buying capability and long term problems for the economy.

Keynesian theories state, that government intervention is required to control recession. To increase the demand, governments require to invest into infrastructure projects, building of roads etc. to ease the tension in the market place. Increased economic activity thus would provide a healthy boost to the economy through which the economy would recover.

Neo-Classical Theory

On The other hand, Neo Classical theorists argue, that the markets independently correct themselves because of the forces of demand and supply which causes a market equilibrium. They argue that Keynesian economists are more likely political and take a lot of time in their decision making, until when the market already corrects itself due to the forces of demand and supply.

They say, that when demand falls, prices of products are reduced by suppliers and the markets itself are capable enough of corrections. The governments on the other hand are very slow in reacting to recession and their actions only come after a certain period of time and have a lot of political considerations which make them ineffective.

Conclusion:-

Therefore, while Keynesian theorists, stress on the role of the government while tackling with depression, Neo Classical theories stress on forces of demand and supply to correct the same.