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The History of Classical Economic Theories - Case Study Example

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The paper entitled 'The History of Classical Economic Theories' presents the classical theory which dominated economic topics in 18th and early 19th century. The architects of classical economic theories were Adam Smith, David Ricardo, and John Stuart Mill…
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The History of Classical Economic Theories
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Download file to see previous pages The post-Keynesian theory is the continuation of Keynes's theories.  Keynes dwelled extensively on general theory and gave a clear explanation of factors that determine output and employment levels of any given economy. Income distribution, uncertainty, consumers’ psychological behavior, entrepreneurs' “animal spirits” and the government policies influence the total demand. King (200, p. 12) states that aggregate demand influence unemployment, distribution of income, deficits of the national, government’s budget deficits and inflation levels. On the other hand, post-Keynesian theory dwells extensively on product distribution, pricing, and competition.
Austrian theory was originally conceived in 1953 by Ludwig Von Mises. It was Later, enriched by Friedrich A. Von Hayek in1967. Austrian theory claims that an individual’s actions and behaviors are dictated by their value system. Economic actions take place in a natural and social environment. The theory does not recognize scientific methods and empirical application to economic problems. The consumers have a value scale that gives the products and services they value.
Both the Keynesian and Austrian theories agree that uncertainty is unpredictable because its outcome is rare (uncommon). For example, it is extremely difficult to predict something that does not have a history (experiences) or trends such as the likelihood of the earth leaving its orbit or the likelihood that a new product would receive good customers or not (Taylor, 2008, p. 30-36). Therefore, the likelihood of the earth leaving its orbit or new product getting many customers is uncertain as per the two theories. On the other hand, as much as both theories agree about uncertainty, there are two divergences about the risk. Austrian theory does not distinguish either and equates risk to uncertainty. Risk is in the notion of action and nobody knows the effect until the action has been done. If the future was known, an individual would not have to make choices because he or she knows exactly what brings good results. Austrian theory claims that individuals act in uncertain environmental conditions.  ...Download file to see next pagesRead More
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