Question

"History of Economic Thought" short answer question

Which, of the major schools of economics (e.g. Classical, Marginalist, Marxian, Keynesian, Institutional), do you feel provides the most accurate description of the workings of the economy and of economic behavior, both with respect to the school’s times, and our own times? Explain.

Answer 1

It is the Keynesian school of thought, that best describes the working of the economy during the time of its evolution and in present time. It can be best illustrated by measures taken up to counter the financial crisis of 2008 and revive the economy. The government came up with over $787 Billion package along with the other tax relief program that can stimulate the aggregate demand and economy can be back on track. It is the example of relevance of this school of thought in present day. This school of though evolved after the great depression of 1930s, when Keynes proposed that it is the demand that creates supply. In that time of evolution, this theory was equally effective and government had to dump the idea of say's law that said that it is supply that creates its own demand.

In contrast, classical school of thought focused upon least interference from the government side, but it does not work when economy is in trouble. big firms never take the risk to hire more people at lower wage when unemployment rate is high. It means that in troubled time, nobody is the taker of classical approach. Marxian approach proposed classless society and uniform distribution. It only worked so some time in some part of the Europe, but today most of the nations follows mixed or market based economy. Marginalist approach is still applied, but it is focused upon micro level and it is limited in scope. Institutional approach can only work when government channelizes them and use the as a tool to implement policies. So, it also requires major support from the Keynesian school of thought. Hence, Keynesian approach is most relevant.