The rationale for classical economic theory with Keynes on determining national output is basically the same...

The rationale for classical economic theory with Keynes on determining national output is basically the same because both theories state that a country tends to improve its economy. Therefore, there is no debate on these two economic theories. Discuss this!

Expert Solution

Classical theory of economics differs from that of Keynesian theory mainly in the concepts of full employment and governmental interventions in the market. Classical theory calls for free market or ‘laissez faire’ policy and claims the market will attain full employment situation with no government intervention. Thus the national output will be the maximum with free market policies which will leads to attain full employment. According to classical economists, improvement in the economy and for the country is possible only through zero governmental interventions in the market as they believe governmental interventions may reduce the efficiency of the market to attain full employment. So, for a country to improve its national output, the market must be free.

Keynesian economics suggests the need for governmental interventions in the market and also admit the existence of unemployment. According to Keynes, no economy stays without unemployment and unemployment is a normal state of an economy. Governmental interventions could improve the employment and output targets of an economy. The proper intervention of government in the market could boost the economy from a worst situation and for the improvement of the same. Keynes gives importance for government spending for the improvement of the output level of an economy, improving its overall performance. So, both theories call for the improvement of output produced in a country but explain the same in different ways.

Rahul Sunny answered 2 years ago

how is classical different from keynes theory

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