5. Explain the main differences between Keynesian Economics and Classical Economics.?

Question

5. Explain the main differences between Keynesian Economics and Classical Economics.?

Answer 1

the difference is that they did their own homework!!

Answer 2

classical follow the basic assumption that

1.economy is in ful employment....

2. the wages and prices are very flexable

3. there is no need of fiscal or monitary policy

4. the invisible hand make the economy self correctable

5. so the Aggregate supply curve is Vertical according to classicals so any rise in aggregate demand will increase prices not production

Keynesian follow the basic assumptions that

1. economy may not be in full employment in short run

2. wage are rigid and prices are sticky (menu cost etc)

3. fiscal as well as monitory policy my be needed to correct the disequilibrium or improve the efficiency of economy

4. aggregate supply is upward sloping in the short run so a rise in aggregate demand may rise the production as well

Answer 3

classical puts more emphasis on supply (say's law) while keynesian on demand (AD) side.