John Maynard Keynes is the father of Keynesian economics and first presented his full theories in 1936 when he published “The General Theory of Employment, Interest, and Money.” The basic theory to Keynesian economics revolves … In macroeconomics, classical economics assumes the long run aggregate supply curve is inelastic; therefore any deviation from full employment will only be temporary. A distinction between the Keynesian and classical view of macroeconomics can be illustrated looking at the long run aggregate supply (LRAS). Emphasis on the Study of Allocation of Resources Only 3. The classical view suggests the most important thing is enabling the free market to operate. Classical vs. Keynesian Model: Which is Correct? That was the year when Paul Samuelson introduced the neo-classical synthesis into the third edition of his influential introductory textbook. However, in Keynesian economics, government intervention should kick in and stimulate the economy by increasing purchases, creating demand for goods and improving prices. Classical economists say that in the short term, you might be able to reduce unemployment below the natural rate by increasing AD. So, as a DESCRIPTIVE tool, I think the Keynesian model (in this regard at least) is superior to the Classical model. The differences are: 1. Keynesian vs Classical School Of Thought. Keynesian economics suggests governments need to use fiscal policy, especially in a recession. 2007-08 economic crisis had revived Keynesian Economics in form of "Stimulus Package". For example, suppose there was a fall in aggregate demand, in the classical model this fall in demand for labour would cause a fall in wages. ADVERTISEMENTS: The following points highlight the six main points of differences between Classical and Keynes Theory. (Keynesian economics is a justification for the âNew Dealâ programmes of the 1930s.) Thomas. Classical economics places little emphasis on the use of fiscal policy to manage aggregate demand. One of the reasons as to why government spending is so important in Keynesian economics is that, it is treated as a quick fix to a situation that cannot be immediately corrected by consumer spending or investment by businesses. In classical economics, government spending is minimum, whereas spending on goods and services by the general public and business investments is considered as the most important to stimulate economic activity. Classical economics places little emphasis on the use of fiscal policy to manage aggregate demand. This may involve reducing the power of trade unions to prevent wage inflexibility. – from £6.99. Prices in a classical economy are decided based on the raw materials used to produce, wages, electricity, and other expenses that have gone in to deriving an output finished product. Classicists are focused on achieving long-term results by allowing the free market to adjust to short-term problems. The Keynesian theory of interest is an improvement over the classical theory in that the former considers interest as a monetary phenomenon as a link between the present and the future while the classical theory ignores this dynamic role of money as a store of value and wealth and conceives of interest as a non-monetary phenomenon. using the IS-LM framework derive and explain the AD curve??? Another difference behind the theories is different beliefs about the rationality of people. 2. Keynesians argue output can be below full capacity for various reasons: Keynesians argue greater emphasis on the role of aggregate demand in causing and overcoming a recession. Keynesians place a greater role for expansionary fiscal policy (government intervention) to overcome recession. All rights reserved. In particular, wages are ‘sticky downwards’. The main classical economists are Adam Smith, J. Keynesian theory was much denigrated in academic circles from the mid-1970s until the mid-1980s. The classical framework is based on laissez faire principles, which opposes any government regulation of the economy. Lower taxes will increase economic efficiency. They triggered the tree seeds to sprout and start a healthy new generation. The Keynesian response is to poke and prod at prices and demand until a temporary market rigidity is achieved, around some arbitrary goals deemed desirable.
Negative multiplier effect. Wage-Cut Policy as a Cure for Unemployed Resources 5. Keynesian economics harbors the thought that government intervention is essential for an economy to succeed. Modern economics incorporates both Keynesian economics and Classical economics as I stated earlier. Keynesian economics suggests governments need to use fiscal policy, especially in a recession. Sayâs Law asserts that âSupply creates its own demandâ (Bortis 5). Classical economic theory, long known as the theory of the firm, inspired and guided the historically unprecedented growth of the middle class during the 18th, 19th and early 20th Centuries. They downplay the role of demand deficient unemployment. In New Classical Theory Wages Are Assumed To Be Somewhat Inflexible, And In New Keynesian Theory Wages Are Assumed To Be Flexible. The Lesson: Nature was better off not disturbed in this case; nature takes care of itself in the long run. 2. The Classical and Keynesian schools of economics represent two differing approaches to economic thought. Keep it on i liked U published and the nature….am really greatful. Can any one Explain for me some two theories economist have come up with to explain the natural rate of unemployment. The main classical economists are Adam Smith, J. Many such beliefs form the difference between the two major schools of thought in economics: Classical and Keynesian economics. Increase in demand for money, which leads to increase in interest rates, which leads to an increase in savings due to higher rates, and then equilibrium is restored However, the two are quite different to each other, and the following article provides a clear outline of what each school of thought is, and how they differ to each other. Assumption of Neutral Money 6. This is the best explanation I have seen on the net, thank you. This is a clear indication that whatever the people produce is all sold.
Keynesian and Hayek economics are theories proposed by two stalwart economists of the 20th century. The differences between classical and Keynesian economics are so vast that to accept one version of how an economy works means you must reject the other. So, as a DESCRIPTIVE tool, I think the Keynesian model (in this regard at least) is superior to the Classical model. He has had a profound influence upon macroeconomics, including the economic policies of various governments. The views have had different names at different times, such as Classical and New Classical economics or Neo Keynesian and New Keynesian economics, but while these views have become more nuanced, the basic perspectives have remained the same. Limited government involvement can influence the economy positively. A classical view would reject the long-run trade-off between unemployment, suggested by the Phillips Curve. Thank You very much, this is much more understandable. e.g. 2007-08 economic crisis had revived Keynesian Economics in form of "Stimulus Package". (Krugman, 2009) any situation in which one person makes the decision about how much risk to take, while someone else bears the cost if things go badly. The differences are: 1. How many of us still remember John Maynard Keynes? Economics professor Anwar Shaikh argues the answer lies not in neoclassical or post-Keynesian theory. Classical economists suggest that in the long-term, an increase in aggregate demand (faster than growth in LRAS), will just cause inflation and will not increase real GDP>, Keynesian view of Long Run Aggregate Supply.
In a recession, people lose confidence and therefore save more. Keynesian economics was developed in the early 20 th century based upon the previous works of authors and theorists in the 19 th and 20 th century. Classical economics and Keynesian economics are both schools of thought that are different in approaches to defining economics. Classical theory is the basis for Monetarism, which only concentrates on managing the money supply, through monetary policy.Keynesian economics suggests governments need to use fiscal policy, especially in a recession. Compare the Difference Between Similar Terms. The horizontal, or Keynesian range, represents a range where increasing output will not lead to any inflation. It has given me an insight in what I am to expect in my exams. Learn vocabulary, terms, and more with flashcards, games, and other study tools. Citations I. Keynesian Model. Advocates of Keynesian fiscal stimulus emphasize that it should be reinforced by monetary stimulus. ⢠Classical economic theory is the belief that a self regulating economy is the most efficient and effective because as needs arise people will adjust to serving each otherâs requirements. Classical vs Keynesian Economics ⢠Classical economics and Keynesian economics are both schools of thought that are different in approaches to defining economics. 2. (Keynesian economics is a justification for the ‘New Deal’ programmes of the 1930s.). But, in the long-term, when wages adjust, unemployment will return to the natural rate, and there will be higher inflation. Keynesian Credit-based Loanable Funds Theory (credit view) vs Classic Loanable Funds Theory (money view) So it needs to be repeated: the old loanable funds theory is irrelevant for understanding how the economic activity resumes after a downturn. Wages are sticky downwards (labour markets don’t clear). The Keynesian model provides a decent theoretical explanation of how a macroeconomic equilibrium can be reached short of full employment. Classical economics was founded by famous economist Adam Smith, and Keynesian economics was founded by economist John Maynard Keynes. In classical economic theory, a long term perspective is taken where inflation, unemployment, regulation, tax and other possible effects are considered when creating economic policies. Classical economics emerged from the foundations laid by Adam Smith in his book An Inquiry into the Nature and Causes of the Wealth of Nations, published in 1776. You are to argue in support of Classical by stating the pros and benefits and reason why Keynesian is not your choice. By spending less this causes a further fall in demand. In my opinion, we run into problems when we start using the Keynesian model PRESCRIPTIVELY. Classical framework does embrace the idea of liberty and freedom more. According to classical economic theory there is no government intervention and the people of the economy will allocate scare resources in the most efficient manner to meet the needs of individuals and businesses. Keynesian Economics Vs. Hayek Economics. At the risk of starting a debate on the classical vs. keynesian economic ideologies, I was wondering which system is more popular on the street? Fiscal Policy. Assumption of Full Employment 2. A Keynesian would argue in this situation the best solution is to increase aggregate demand. The Classical approach, with its view of self-regulating markets that require little government involvement, dominated the 18th and 19th centuries. Classical economic theory is the theory that was developed between let us say 1776 and the 1870s, almost entirely by philosophers and business people who were actually looking at the economy. ⢠Keynesian economics harbors the thought that government intervention is essential for an economy to succeed. B, Say, David Ricardo, J. S. Mill. Keynesian economics also called Keynesianism and Keynesian theory) is a school of macroeconomic thought based on the ideas of 20th-century English economist John Maynard Keynes.Keynesian economics advocates a mixed economy — predominantly private sector, but with a moderate role of government and public sector — and served as the economic model during the later … They just say they may not always be enough. They are both correct modeling methods, but in the circumstances classical economics works, the Keynesian fails. Once there is a fall in aggregate demand, this causes others to have less income and reduce their spending creating a negative knock-on effect. The Keynesian theory of interest is an improvement over the classical theory in that the former considers interest as a monetary phenomenon as a link between the present and the future while the classical theory ignores this dynamic role of money as a store of value and wealth and conceives of interest as a non-monetary phenomenon. Video: Keynesian vs. Classical economics places little emphasis on the use of fiscal policy to manage aggregate demand. Terms of Use and Privacy Policy: Legal. Classical framework does embrace the idea of liberty and freedom more. at the start of the 1930s, the ‘. Keynesian economics also called Keynesianism and Keynesian theory) is a school of macroeconomic thought based on the ideas of 20th-century English economist John Maynard Keynes. From almost everyone I've talked to, they all subscribe to the classical belief, but why? The main question that comes up in the discussion of Classical theory is why people work. Keynesians place a greater emphasis on demand deficient unemployment. Why did it fail globally during the seventies and, more recently, under Lula in Brazil? Classical economics and Keynesian economics take very different approaches to varying economic scenarios. The Classical model stresses the importance of limiting government intervention and striving to keep markets free of potential barriers to their efficient operation. Both groups agree that aggregate demand and aggregate supply affect the course of the macro economy. However, Team B believes that the Keynesian theory is better for the economy overall. Fiscal Policy. (This is an argument to reject austerity policies of the 2008-13 recession. 1 Summary Neither, if you are referring to the way neoclassical and Keynesian macroeconomics are taught in Western Universities. The âInvisible Handâ is a metaphor created my Adam Smith to describe the self-regulating behavior of the marketplace. The Keynesian view of long-run aggregate supply is different. The Keynesian view suggests that government borrowing may be necessary because it helps to increase overall aggregate demand. They argue that the economy can be below full capacity in the long term. Video: Keynesian vs. Because of the different opinions about the shape of the aggregate supply and the role of aggregate demand in influencing economic growth, there are different views about the cause of unemployment. (2015, January 26). (Keynesian economics is a justification for the âNew Dealâ programmes of the 1930s.) Get Your Custom Essay on Keynesian vs classical economics Just from $13,9/Page Get custom paper. Then the middle class (all those who work and produce adequately to support themselves and their families) was struck by a determined assault intended and executed to destroy the middle class and … Wow! You are welcome to ask any questions on Economics. I love it cause of its simplicity in explanations. Discover how the debate in macroeconomics between Keynesian economics and monetarist economics, the control of money vs government spending, always comes down to proving which theory is better. Should the government influence the economy or stay away from it? The Keynesian View: Monetary Equilibrium: The Keynesian … The old policy of trying to manage nature was counter productive. Emphasis on the Study of Allocation of Resources Only 3. Filed Under: Economics Tagged With: classical, Classical Economics, Keynesian, Keynesian Economics. Generally, political liberals would side with Classical economics. Click the OK button, to accept cookies on this website.
Classical economics is the parent of ‘. Classical theory is the basis for Monetarism, which only concentrates on managing the money supply, through monetary policy. The main reason appears to be that Keynesian economics was better able to explain the economic events of the 1970s and 1980s than its principal intellectual competitor, new classical economics. Therefore, there is no trade-off in the long-run, Keynesians support the idea that there can be a trade-off between unemployment and inflation. Classical vs Keynesian. Classical & Austrian Economics: Intro to Macroeconomics The Repo Market. Keynesian economics places government spending to be the most important in stimulating economic activity, so much so that even if there is no public spending on goods and services or business investments, the theory states that government spending should be able to spur economic growth. Thomas. Start studying Classical vs. Keynesian Economics. The real problem is, voters are shortsighted. Thus the result of an increase in money is to raise money wages and prices in equal proportion, leaving output, employment and the real wage rate unaffected. Which economic school of thought should Canada structure its economic policy after; Keynesian or Classical? Policy of ‘Laissez Faire’ 4. Since in the Keynesian model, the AS curve is upward sloping in the short run, economic policies (such as monetary and fiscal policies) that increase aggregate demand succeed in increasing output and employment, from Y 0 to Y 1 and Y F, shown in Fig. Classical Versus Keynesian Economics: Definition of Classical and Keynesian Economists: The economists who generally oppose government intervention in the functioning of aggregate economy are named as classical economists. In this Buzzle article, you will come across a Keynesian vs. Hayek economics comparison chart, which will highlight … We vote for Classical economic policies when times are good (because it makes the times even better) and Keynesian economic policies when times are bad (because it makes the times less bad). Economics is the quantitative and qualitative study on the allocation, distribution and production of economic resources. Keynesian Theory rejects Say’s Law of self-regulation and suggests that the relationship between aggregate income and expenditure is key. Economics, itâs the science that discusses about the reasons and explains the factors that are associated with the production, distribution and consumption of goods and various services by the people. The classical model is often termed ‘laissez-faire’ because there is little need for the government to intervene in managing the economy. ⢠Classical economics and Keynesian economics are both schools of thought that are different in approaches to defining economics. However, Keynesians argue that in the real world, wages are often inflexible. The Concept of Classical TheoryThe classical economic theory is based on Sayâs Law. However, Team B believes that the Keynesian theory is better for the economy overall. For example the current situation in Europe (2014), a Keynesian would say that this unemployment is partly due to insufficient economic growth and low growth of aggregate demand (AD). Wow, this is great. (Keynesian economics is a justification for the ‘New Deal’ programmes of the 1930s.) A Classical believes either that the economy itself automatically cures a recession or that monetary stimulus alone is sufficient. See: Phillips curve. Keynesian don’t reject supply side policies. A fall in demand for labour would cause wages to fall from W1 to We. This fall in confidence can cause a rapid rise in saving and fall in investment, and it can last a long time – without some change in policy. Fiscal Policy. Keynes believed in applying monetary and fiscal policies to lessen the deleterious effects of both recessions and depressions. In a recession, if the government did force lower wages, this might be counter-productive because lower wages would lead to lower spending and a further fall in aggregate demand. Workers resist nominal wage cuts. Keynesian economists postulate that the aggregate demand that is influenced by both public decisions (government agencies) and private decisions (businesses and individuals). This has important implications. Thus, the Keynesian policy is better for a government during a recession. Classical & Austrian Economics: Intro to Macroeconomics The Repo Market. Definition of Interest – According to the classical economists, interest is a … I really enjoyed every detailed information in this site.
Coming from Engineering cum Human Resource Development background, has over 10 years experience in content developmet and management. Question: The Difference Between New Classical Theory And New Keynesian Theory Is That Question 8 Options: In New Classical Theory Wages Are Assumed To Be Flexible, And In New Keynesian Theory Wages Are Assumed To Be Somewhat Inflexible. A classical view will stress the importance of reducing government borrowing and balancing the budget because there is no benefit from higher government spending. Limited government involvement can influence the economy positively. That was the year when Paul Samuelson introduced the neo-classical synthesis into the third edition of his influential introductory textbook. The Keynesian theory has an implication from the policy point of view. Classical. The Keynesian model makes a case for greater levels of government intervention, especially in a recession when there is a need for government spending to offset the fall in private sector investment. Keynesian What happens when there is an increase in investment in a classical economy? Interest […] Advantages and disadvantages of monopolies. 1970's, inflation: skyrocketed and people began losing faith in Keynes' theory -economists blamed gov't spending -world economics went back to classical thinking Stimulus Package Keynesian economics system helped the economy through Stimulus Package. ADVERTISEMENTS: The following points highlight the six main points of differences between Classical and Keynes Theory. (adsbygoogle = window.adsbygoogle || []).push({}); Copyright © 2010-2018 Difference Between. They see issues short-term as just bumps on the road tha⦠Classical economics was founded by famous economist Adam Smith, and Keynesian economics was founded by economist John Maynard Keynes. Interest [â¦] Classical theory is the basis for Monetarism, which only concentrates on managing the money supply, through monetary policy. It is in this sense that money is a veil or neutral in the classical system. Should economic policy be focused on long term results or short term problems? The Classical and Keynesian schools of economics represent two differing approaches to economic thought. What is the difference between Classical Economics and Keynesian Economics? Keynesian policies – providing deficit-financed stimuli to the economy – seemed to work under Hitler in the 1930s and under Roosevelt during World War II. Classical school’s idea of efficiency in the Market mechanism is again challenged by new Keynesian school with the idea of moral hazard. The Classical approach, with its view of self-regulating markets that require little government involvement, dominated the 18th and 19th centuries. A paradox of thrift. Classical theory is the basis for Monetarism, which only concentrates on managing the money supply, through monetary policy. In a recession, increasing AD will lead to a fall in unemployment, though it may be at the cost of higher inflation rate. (see: Keynesian economics suggests that in difficult times, the confidence of businessmen and consumers can collapse – causing a much larger fall in demand and investment. Unlike the classical model, the Keynesian model was largely the work of one man and one time period: John Maynard Keynes and the Great Depression. Classical economics places little emphasis on the use of fiscal policy to manage aggregate demand. Keynes, also called "1st Baron Keynes," was a British Economist who lived from 1883 to 1946. Economics is the quantitative and qualitative study on the allocation, distribution and production of economic resources. The classical view suggests that real GDP is determined by supply-side factors – the level of investment, the level of capital and the productivity of labour e.t.c. Classical economics was founded by famous economist Adam Smith, and Keynesian economics was founded by economist John Maynard Keynes. Keynesians argue that the economy can be below full capacity for a considerable time due to imperfect markets. in a deep recession, supply side policies can’t deal with the fundamental problem of a lack of demand. Graphs that help in the understanding of classical theory: Keynesian Theory of Income and Employment Classical vs Keynesian models Two economic models of thought are classical and Keynesian models. Classical theory is the basis for Monetarism, which only concentrates on managing the money supply, through monetary policy. Many traces of Adam Smithâs work can be found in todayâs economic systems and structures. The mature trees also grew better. Supply side, or classical economics and Keynesian and New Keynesian economics are two very important ways of modeling the world, but with very different assumptions. So, we have two models of economic growth. Keynesian economics believes that economic activity is influenced heavily by decisions made by both the private and the public sector. Classical view of Long Run Aggregate Supply, The Classical view is that Long Run Aggregate Supply (LRAS) is inelastic. In the case that the Keynesian is operative, the classical fails. Keynesian believers agree that government should step in and implement policies that will regulate the economy more efficiently. Classical economics assumes that people are rational and not subject to large swings in confidence. Differences Between Classical & Keynesian Economics. Keynesian Vs. The three theories of interest, i.e., the classical capital theory, the neoclassical loanable funds theory and the Keynesian liquidity preference theory, have been differentiated below: Difference # Classical Theory: 1. (e.g.
Classical economics and Keynesian economics are both schools of thought that are different in approaches to defining economics.Classical economics was founded by famous economist Adam Smith, and Keynesian economics was founded by economist John Maynard Keynes. At the risk of starting a debate on the classical vs. keynesian economic ideologies, I was wondering which system is more popular on the street? From almost everyone I've talked to, they all subscribe to the classical belief, but why? What is the difference between Keynesian economics and monetarist economics? Commentdocument.getElementById("comment").setAttribute( "id", "a524bc7f4456e67214c1baddb8aef25e" );document.getElementById("d2047b8f2b").setAttribute( "id", "comment" ); Cracking Economics Keynesian economics Vs Classical economics Introduction. Classical economics places little emphasis on the use of fiscal policy to manage aggregate demand. The main differences from Neoclassical to Keynesian theories are that Neoclassical argue the individual`s rationality, and their ability to maximize utility and firms to maximize profit. Policy of âLaissez Faireâ 4. – A visual guide Assumption of Full Employment 2. Classical economic theory is the belief that a self regulating economy is the most efficient and effective because as needs arise people will adjust to serving each otherâs requirements. Assumption of Neutral Money 6. The classical framework is based on laissez faire principles, which opposes any government regulation of the economy. In defense of Keynesian economics, there are several positive outcomes. Each model takes a diverse approach to the economic education of financial policy, buyer behavior, and government spending. One significant difference between Keynesian Economics and Classical Economics is how they foretell how the economy could turn out. Classical Versus Keynesian Economics: Definition of Classical and Keynesian Economists: The economists who generally oppose government intervention in the functioning of aggregate economy are named as classical economists. Classical economics emphasises the fact that free markets lead to an efficient outcome and are self-regulating. The policy was changed to allow the natural cycle to return. A Classical believes temporary fiscal stimulus won't mitigate a recession but will do harm by raising government debt. @media (max-width: 1171px) { .sidead300 { margin-left: -20px; } }
And, as mentioned above, the wide use of mathematical equations in multifarious aspects of the economy. The two schools of economic thought are related to each other in that they both respect the need for a free market place to allocate scare resources efficiently. The Keynesian model provides a decent theoretical explanation of how a macroeconomic equilibrium can be reached short of full employment. In my opinion, we run into problems when we start using the Keynesian model PRESCRIPTIVELY. In the classical model, there is an assumption that prices and wages are flexible, and in the long-term markets will be efficient and clear. “There is a third way”. The Classical Model says that the economy is at ⦠Taking an example, if a country is going through an economic recession, classical economics states that wages would fall, consumer spending would decrease, and business investment would reduce. Keynesian economics, on the other hand, takes a short term perspective in bringing instant results during times of economic hardship. And, you're absolutely right, this is not sustainable. Difference Between Consumer Price Index (CPI) and Gross Domestic Product (GDP) Deflator, Difference Between Economic Growth and Development, Difference Between Monopoly and Monopsony, Difference Between Consumer Goods and Capital Goods, Difference Between Coronavirus and Cold Symptoms, Difference Between Coronavirus and Influenza, Difference Between Coronavirus and Covid 19, Difference Between Neurogenesis Neuroplasticity and Neuroregeneration, Difference Between Cardioversion and Defibrillation, Difference Between Potential Difference and Voltage, Difference Between Ovarian Cyst and Ovarian Cancer, Difference Between Primary Secondary and Tertiary Follicle, Difference Between Tonofibrils and Tonofilaments, Difference Between Isoelectronic and Isosteres, Difference Between Interstitial and Appositional Growth. Increase in real gdp is often interpreted as increase in welfare” what are the problems with this interpretation? This decline in wages would ensure that full employment was maintained and markets ‘clear’. The latter approach simply stores up the equivalent of tectonic forces in the markets until when they break, they do so catastrophically. Classical economists argue that unemployment is caused by supply side factors – real wage unemployment, frictional unemployment and structural factors. Classical Economics Vs. Keynesian Economics: The Key Differences. Keynesian school – All recessions are bad and must be suppressed by government actions. Readers Question: Could you give a summary of Keynesian and Classical views? It has staged a strong comeback since then, however. For example, if there were a fall in demand for labour, trade unions would reject nominal wage cuts; therefore, in the Keynesian model, it is easier for labour markets to have disequilibrium.Wages would stay at W1, and unemployment would result. Wage-Cut Policy as a Cure for Unemployed Resources 5. There are a number of important differences between classical and Keynesian economics, but in general classic theory teaches that things in the marketplace like economic growth and investment capital are most effectively driven by consumers and free choice, while the Keynesian school of thought spends more time considering government regulation and oversight. In thinking about the aggregate supply curve, it is useful to identify three distinct ranges in the curve, as illustrated in this figure. Differences Between Classical & Keynesian Economics. B, Say, David Ricardo, J. S. Mill. 12.What about the policy implication of classical economics? Our site uses cookies so that we can remember you, understand how you use our site and serve you relevant adverts and content. Therefore, total spending, output, investment and interest rates are expected to remain unchanged in the long run, according to classical theory. In his book The General Theory of Employment, Interest, and Money, John Maynard Keynes argued that the markets do indeed fail, and that if individuals or private enterprise cannot or will not spend in the short term, then the Keynesian vs. classical economics By and_karri packages, bailouts, and government purchases in the market. Thank you so much simple English explanations easy to understand and relate to some of the things you see around you and immediately you are able to identify which theory is applied here. 1970's, inflation: skyrocketed and people began losing faith in Keynes' theory -economists blamed gov't spending -world economics went back to classical thinking Stimulus Package Keynesian economics system helped the economy through Stimulus Package.
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