Question

Queiton 47 Not yet Given all that we have learned in the past several chapters, explain the conceptual difference between Classical and Keynesian Economics as it pertains to the business cycle. Is this difference important? Feel free to use any pictures/diagrams if warranted. Points out of Flag

Answer 1

There are several conceptual differences between the classical and the keynesian school of economics,however an attempt has been made to mention few of them.

Keynesian economics believes in capitalism.It says as people would have more money,they would spend more and increase the AD resulting in growth of the nation.It believes that government should intervene in the market operations to some extent to make desired changes in spendings,income and investment,also the govt. should take steps to maintain price stability and keep prices in desired range.As per keynes,government should spend more and can borrow as this would lead to investment,employment etc. which is good for the economy.It focuses more on employment and less on inflation.It says that the government should focus on short term and take steps to solve immediate issues to ensure long term growth.

The Classical economics believes lesser in capitalism.It believes in no government interference in market operations.Government should spend less and it considers borrowing to be the greatest threat to economic welfare.It focuses more on inflation and less on employment.It believes that the economy itself operates at full employment level.It says prices should be determined by the free mechanism of demand and supply in the economy.It focuses more on long term goals and issues to achieve growth and development while letting free market to adjust the short term issues itself.