Question

What are the TWO most fundamental differences between New Keynesian economics and New Classical economics? Please name the two differences and explain)

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Answer 1

Ans..........

The differences between Keynesian theory and classical economy theory affect government policies, among other things. One side believes government should play an active role in controlling the economy, while the other school thinks the economy is better left alone to regulate itself

New Keynesian economics	New Classical economics
Keynesian advocates believe capitalism is a good system, but that it sometimes needs help. When times are good, people work, earn money and spend it on things they want. The spending stimulates the economy, and everything runs smoothly. But when the economy goes downhill, moods change. During tougher times, businesses start closing and firing their employees. People don't have money to spend, and they try to save what little they have left. When people quit spending, the economy loses its momentum and spirals farther down.	The theory of classical economics is that free markets will regulate themselves if they are left alone. Markets will find their own level of equilibrium without interference by people or the government.
Keynesian theory says this is exactly when government intervention makes sense. If people aren't spending, then the government has to step in and fill the void. However, there's just one problem: The government doesn't have its own money. It has to take money away from the people and companies to spend it. Higher taxes for businesses take money away that could otherwise be spent on more investments to grow the company.	In a classical economy, everyone is free to pursue their own self-interests in a market that is free and open to all competition. When people work at jobs making things, they get paid and use these wages to buy other products. In essence, workers create their own demand for goods and services.
Keynesians argue that the economy can be below full capacity for a considerable time due to imperfect markets. Keynesians place a greater role for expansionary fiscal policy (government intervention) to overcome recession.	Classical economics emphasises the fact that free markets lead to an efficient outcome and are self-regulating. In macroeconomics, classical economics assumes the long run aggregate supply curve is inelastic; therefore any deviation from full employment will only be temporary.