Question

How does Institutional Economics and Keynesian Economics critique Neoclassical Economics?

Answer 1

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Introduction

In recent history of economics developement there are so many changes are made in various stragies of economic decisions and the main focus area of nstitutional Economics and Keynesian Economics critique Neoclassical Economics is become a base to achieve the ultimate goal of financial develoepment

Abstract

1. The main difference is that neoclassical economists view markets as self correcting. Keynes believed intervention is sometimes necessary - particularly in the form of demand management (using fiscal policy). The implications of these opposing views underpin an ideological divide.
2. In the neoclassical perspective, aggregate supply will determine output at potential GDP, unemployment is determined by the natural rate of unemployment churned out by the forces of supply and demand in the labor market, and shifts in aggregate demand are the primary determinant of changes in the price level.
3. In general, allegedly overly unrealistic assumptions are one of the most common criticisms towards neoclassical economics. Economists tend to focus on markets or aggregate outcomes instead of observing individual behavior.

4. Three central assumptions that are mainly focused on : 1) People have rational preferences between outcomes that can be identified and associated with values. 2) Individuals maximize utility and firms maximize profits. 3) People act independently on the basis of full and relevant information.

5. Classical emphasized on the use of fiscal policies to manage the aggregate demand because classical theory is the basis for monetarism which focused on managing money supply through monetary policy. Whereas, Keynesian emphasized on the need to use fiscal policy too, especially when the economy facing recession
6. Neo-Keynesian economics is a school of macroeconomic thought that was developed in the post-war period from the writings of John Maynard Keynes. The new Keynesians helped create a "new neoclassical synthesis" that currently forms the mainstream of macroeconomic theory.

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