What is the Difference Between Classical and Keynesian?
🆚 Go to Comparative Table 🆚The main differences between Classical and Keynesian economics are:
- Government Intervention: Classical economics advocates for less government intervention, while Keynesian economics supports more government intervention in the economy.
- Fiscal Policy: Classical economics places little emphasis on the use of fiscal policy to manage aggregate demand, focusing instead on managing the money supply through monetary policy. Keynesian economics, on the other hand, suggests that governments need to use fiscal policy, especially during a recession.
- Market Equilibrium: The Classical model is based on the assumption that prices and wages are flexible, and in the long term, markets will be efficient and clear. Keynesian economics allows for the possibility of disequilibrium, with excess supply of goods and labor.
- Full Employment: The Classical model assumes the economy produces at full capacity, with full employment of capital and labor. Keynesian economics argues that the economy can be below full capacity for a considerable time due to factors such as sticky wages and prices.
- Supply Shocks: The Classical model focuses on supply-side factors, which it believes are the primary determinants of real GDP. Keynesian economics takes into account supply shocks, which can influence both demand and supply.
On this pageWhat is the Difference Between Classical and Keynesian? Comparative Table: Classical vs Keynesian
Comparative Table: Classical vs Keynesian
Here is a table comparing the differences between Classical and Keynesian economics:
| Feature | Classical Economics | Keynesian Economics |
|---|---|---|
| Focus | Long-term growth | Short-term growth |
| Supply & Demand | Emphasizes the importance of supply-side factors in determining real GDP | Demand plays a crucial role in the economy |
| Government Intervention | Minimal intervention, free markets lead to efficient outcomes | Government intervention is necessary to stabilize the economy |
| Rationality & Confidence | Assumes people are rational and not subject to large swings in confidence | People's irrational decisions can affect the economy, especially in difficult times |
| Inflation & Unemployment | More concerned about inflation, sees unemployment as a result of interference in the free market or price controls | Focuses on unemployment, sees inflation as a lesser concern |
| Long-run Aggregate Supply | Long Run Aggregate Supply (LRAS) is inelastic, real GDP is determined by supply-side factors | LRAS is elastic, real GDP is determined by both supply-side and demand-side factors |
| Price & Market Influences | Prices should fluctuate based on the wants of consumers, the market will adjust itself to shortages and surpluses of products | Government should maintain price levels and influence corporations to keep prices within a range |
| Future Growth of the Economy | The economy will always seek a level of full employment, no need for government intervention | The economy can be below full capacity for a considerable time, requires government intervention to stimulate growth |
The main differences between Classical and Keynesian economics lie in their focus and beliefs about government intervention, the role of demand in the economy, and the rationality of people in making decisions.
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