Question

Who is ‘right’ concerning the business cycle – the Keynesian school or Classical school?

please draw a graph on Keynesian, classical theory with better and simple understanding.

lastly, give the easy conclusion and draw a graph on a Keynesian, intermediate and classical graph with the explanation....

use a simple and easy explanation.

Answer 1

Classical economists do consider full employment as general condition in economy. Any deviation from full employment, is temporary and there is no need of goverment intervention to restore full employment.

Conversely, keynse does not consider full employment as general condition. There must be government action to smooth out economic fluctuations. During the recession, goverment raises its expenditure and reduces taxes thereby raising level of economic activities.

Under the keynesian, there is rise in output kevel if demand rises. But over the internediate range , demand partly leads to rise price and partly rise in ourput level.

Over the classical range, demand fully get reflected on rise in price level.