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Macroeconomics- comparing classical economic theories and keynesian economic theories - Essay Example

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These theories have been bifurcated into various categories such as classical, neo-classical, Keynesian and so on. Classical economic theories…
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Macroeconomics- comparing classical economic theories and keynesian economic theories

Download file to see previous pages... ion, 1930s and General Theory of Employment, Interest & Money, published in 1936 is acknowledged as the best one of his life time efforts (Skousen, 2001). This essay makes an attempt to compare the classical economic theories and Keynesian economic theories. The essay takes a descriptive approach where economic theories of two different periods are compared and contrasted from three angles, namely beliefs, theories and policies.
Firstly on the basis of beliefs-Malthus, one of the classical economists believed that, if increase in population was not enough to depress the rate of long term growth it would affect the diminishing returns. And also believed that to ensure growth the government should adopt laissez faire approach which included free trade and free markets. In addition to this, Adam Smith, the Father of Economics who introduced the notion of invisible hand supported the economic activity and led to optimum equilibrium (Stoft, 2002). They also viewed if there is disequilibrium between leakages and injections then the price would adjust to restore equilibrium. In spite of these beliefs they were not much happy in the initial periods but later they had confident with them that their approaches will lead to success in the market. But all this beliefs were strongly opposed by John Maynard Keynes in his Keynesian theory. He argued that the market will not reach to equilibrium at full employment but would reach at any level of unemployment. And also argued that need for government was not essential to interfere in the market to manage level of demand and it was the level of output restored the equilibrium and made the leakages and injections equal through his multiplier effect.
Secondly on the basis of theories-the classical economist views that free trades and free markets should be adopted to encourage growth in the market. And the government should handle the situation if there is any imperfection that prevented free workings in the market by using supply ...Download file to see next pagesRead More
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