Showing posts with label CLASSICAL. Show all posts
Showing posts with label CLASSICAL. Show all posts

Friday, April 15, 2011

Keynesian vs Classical Economics

So I'm currently taking macroeconomics and we are currently learning about Keynes vs Classical Economics.

Classical
This is considered the first school of economic thought. It was founded by Adam Smith who wrote The Wealth of Nations. He basically supported the idea of no government intervention. Some of you may have heard of Say's Law which states that supply creates its own demand. Smith would say that the economy will eventually correct itself without government intervention.

Keynesian
Keynes would disagree with the classical school of thought and say that the market is imperfect and cannot sustain itself. Therefore, government intervention is necessary and should stimulate demand. When the government stimulates demand, there is economic growth. Pretty much, he is saying that the government should give money to people so people can buy things and this will stimulate the economy.

Of course there is a middle ground to this which includes Neo-Keynesian and Neo-Classical economics.

Which would you choose? Government intervention or no government intervention?