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Theory And Policy For Macroeconomics - Essay Example

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The essay "Theory And Policy For Macroeconomics" presents the debate between Keynesian and Classical economists on the efficiency of the market mechanism and the efficacy of government policy intervention on the basis of the current financial crisis…
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Theory And Policy For Macroeconomics
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Keynesian economics and classical economics are the two major streams of economics. Classical economic theory was the first economic school of thought founded by the great economist Adam Smith in the 18 century. Classical economics theory assumes that free markets can regulate themselves if left alone, free of any human intervention (Patil, 2010). This theory has immense belief in the market’s ability to stabilize after fluctuations. Classical economists believe that it is difficult for the market to function without fluctuations because of the dependence of the market with so many other internal and external parameters. Any changes that happened in these parameters can affect the market mechanisms or the performances. Classical economists believe that the government need not intervene in the market to save it in case of big fluctuations as the market itself has the stabilizing capacity.
On the other hand, Keynesian economics the brainchild of the great economist, John Maynard Keynes, believes that there is no divine entity, nor some invisible hand, that can tide us over economic difficulties, and we must all do so ourselves. It stresses the fact that Government intervention is absolutely necessary to ensure growth and economic stability (Patil, 2010). Thus we can see that both classical economists and the Keynesian Economists have different views about the market mechanisms and the market functioning. The current economic crisis came at an unexpected time and neither the classical economists nor the Keynesian economists succeeded in predicting the current crisis. ...Download file to see next pagesRead More
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