Comparison and Contrast of Keynesian and Classical Economic - Essay Example

As the study discusses Keynes further argued that the level of total spending in the economy could be less to provide full employment. This disagreed with the classical economists who believed that the interest rate adjustments, wages, and prices would help to prevent the unemployment. Keynes said that the full employment happens when the amount of total spending is enough. Moreover, if the spending is not sufficient, then the unemployment will occur.This essay highlights that Keynes also disagreed with the relationship between saving and investment not being enough to support classical claims that the support full employment.

Classical economist described two forces that ensure full employment occurs. Those are the interest rate adjustments and wage/price flexibility. If the interest rate falls as planned and the investors result in little spending, salaries and prices can still support to ensure full employment is reached. When a competitive market occurs, the low demand will lead to falling wages and prices that will finally lead to all outputs being sold and prevent unemployment. Keynes disagreed with classical assumptions about high wages and prices are not consistent with the real world.

Keynes explained that variety of forces prevented prices and wages from adjusting quickly. These forces prevent prices and wages from changing quickly and in a downward direction. Keynes said that many product markets are monopolistic or oligopolistic.