Definitions
In economics ----- economics , also ------- and -----Theory, is based on the ideas of twentieth-century British economist John Maynard Keynes. According to------ economics the public sector, or the state, can stimulate economic growth and improve stability in the private sector – through, for example, interest rates, taxation, and public projects.
Keynesian Theory,keynesian economics or Keynesianism
Keynesian policies such as fiscal stimulus can help mitigate the impact of economic downturns by increasing aggregate demand. This can prevent prolonged periods of recession and promote economic recovery.
Counteracting Economic Downturns
Critics argue that classical economics does not adequately address income inequality. It can lead to policies that benefit the wealthy and exacerbate income disparities.
Neglect of Income Inequality
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One key difference lies in the role of government in the economy. Keynesian economics advocates for active government intervention, especially during economic downturns, through fiscal and monetary policies. In contrast, the Classical model emphasizes a more hands-off approach, believing that markets will naturally correct themselves without significant government interference.
Role of Government
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Classical economics emphasizes the efficiency of free markets. It argues that in a competitive market, resources are allocated optimally, leading to the greatest possible economic output.
Market Efficiency
One of the criticisms of Keynesian policies is that they can potentially lead to inflation. When the government increases spending, it can drive up demand for goods and services, causing prices to rise. This inflationary pressure can erode purchasing power and lead to economic instability.
Inflationary Pressure
is a branch of economics that focuses on the study of the economy as a whole, rather than individual markets or specific economic agents (such as firms or consumers). It deals with broad economic phenomena, including the overall performance and behavior of a nation's or region's economy.
Macro-economics
Classical economists generally believe in the flexibility of wages and prices. They argue that in a free market, wages and prices adjust quickly to changes in supply and demand, ensuring equilibrium. Keynesian economists, on the other hand, contend that wages and prices are sticky, meaning they do not adjust rapidly to changes in demand. This sticky price and wage scenario can lead to market inefficiencies and require government intervention to correct imbalances during economic fluctuations.
Wage and Price Flexibility
aggregate income = aggregate expenditures
Keynesian
Keynesian economics advocates for active government involvement in the economy, especially during times of recession. By increasing government spending and cutting taxes, it aims to boost demand and stabilize the economy.
Stabilizing the Economy
Classical economics relies on the assumption of perfect competition, which rarely exists in the real world. Many markets are imperfect, with barriers to entry, market power, and information asymmetry, which can lead to inefficient outcomes.
Assumptions of Perfect Competition
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Which Keyword uses less government assistance?
Keynesian or Classical
Classical
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Classical economics stresses the importance of productivity and innovation as drivers of economic growth. It encourages policies and incentives that promote technological progress and efficiency.
Emphasis on Productivity
Critics argue that excessive government intervention, as advocated by Keynesian economics, might lead to inefficiency and bureaucracy. They contend that the government might not always make the most efficient decisions regarding resource allocation, which could hinder long-term economic growth.
Government Intervention Limitations
State of balance
Equilibrium
Who is the founder of the Keynesian Theory?
John Maynard Keynes
The ------Theory is the traditional theory, wherein more emphasis is on the organization rather than the employees working therein. According to the ---- theory, the organization is considered as a machine and the human beings as different components/parts of that machine.
Classical theory
The Keynesian model emphasizes the importance of reducing unemployment. It suggests that government intervention can create jobs through public works programs and stimulate consumer spending, thus lowering unemployment rates.
Employment
The classical approach advocates minimal government intervention. While this can promote economic freedom, it may not address market failures, externalities, and other problems that require government regulation and intervention.
Limited Role for Government
Equal
Ceteris Paribus
Who is the Founder of the Classical Theory?
Adam Smith