Describe and differentiate between Classical and Keynesian economics.?
I need a good explaination.
- NCLv 71 decade agoFavorite Answer
Views on rigidity of wages and the nature of economy's response to recession.
During classical times (1770-1850), wages were downward-flexible, and economies responded to contracting aggregate demand by lowering the price level. By 1900, it was no longer the case. Wages became downward-inflexible (or, as economists sometimes say, sticky), so economies began to respond to reductions of aggregate demand by increasing unemployment. Keynes was the first to point it out and offer some suggestions for coping with it.
Unlike classics, who contended that things always sort themselves out in the long-run, Keynes thought that the short-run is also important (hence, his famous phrase, "in the long-run, we are all dead"), so a government may consider employing short-term policies to limit the swings of the business cycle.
- azkazk2005Lv 61 decade ago
Classical: Equilibrium is found step by step through prices
Labour market: you get to the equilibrium changing wages
Money market: demand=supply through changes in rates of i
Goods market: prices move and equilibrium is found
Keynesian: Equilibrium is found through snapshots amounts
Labour market: There´s a minimum wage
Money market: Transaction and speculation are considered
Goods market: Equilibrium Savings = Investments