Question

1. Summarize the Keynesian and Neoclassical Models.

Answer 1

Reynesian economics is a theory that says the government should increase demand to booth grooth. Keynesians believe Consumer demand is the primary atining force in an economy. As a resut, the theory supports espansion ary fiscal policy. It's main tools are government spending on infrastructure, unemployment benefits, & education. A drawback is that over doing keynesian policies increases infla Keynes described his premise in the general theory of employmenti interest, a money. It argued that government spen- ding was a critical factor driving aggregate demand. That means an increase in spending would increase demand Keynes argued that government spending was necessary to maintain full empla ation, 11 oyment,

The assumptions of the neoclassical model are clearly unrealistic a this fact raises the importance of empia rical work in economics. Every analysis of a problem is necessarily an ab- struction from reality, ignoring some of the complexities of the reen word to focus on others. The art of modelling is to know which Simplifying assiemptions one cean make and still capture the essena of the problem is how well it fits the avain lable data. The realism of a moolel's underlying assumptions, because a hypothesis is important as long as the model yields good predictive ren Suts.