The Classical Economists and Keynes the Debate on...

The activist-nonactivist discussion, and the role the government should play in forming economic policy, has been a long running debate among. It is common thought today, in the general populous, that the burden of unemployment and inflation should fall on the government, and that the government should play an active role in combating such economic stresses. However, there are those who believe government intervention should be avoided. This controversy first became popularized over 50 years ago with the famous economist John Maynard Keynes, and the classical economists of his time, whose economic foundations lay in Alfred Marshall’s seminal work, the Principles of Economic. The purpose of this paper is to discuss the classical†¦show more content†¦Then in 1936 John Maynard Keynes wrote The General Theory of Employment, Interest, and Money, sharply criticizing classical economics. Interestingly enough Say’s Law is often known by the concept â€Å"that sup ply creates its own demand,† a formulation of Say’s Law interpreted by Keynes. Keynes strictly renounced this doctrine and was of the belief that business relied on expected demand to make their production decisions. He thought that the more that households expected to spend, the more business will expect to sell. Therefore, supply responds to demand, it does not create it. The Keynesian model looked towards the concept of equilibrium output, with stable prices and stable output, where total spending = total output, and total investment = total savings. Like the classical economists Keynes believed that a market economy would tend toward equilibrium, but he did not believe, as the classicals did, that the economy reached equilibrium with full employment. He believed that unemployment equilibrium could exist when the economy was at less than full employment. Keynes believed that the classical economists were to optimistic. Keynes believed that when households want to save more than buisnesses want to invest the level of production and employment in the economy will fall short. Another aspect in which Keynes disagreed about full employment was the classical economist’s views on flexible wages and prices. He thought that marketsShow MoreRelatedKeynes and the Classical Economists6500 Words   |  26 PagesKeynes and the Classical Economists: The Early Debate on Policy Activism LEAR N I NG OBJ ECTIVE S 1. Discuss why the classical economists believed that a market economy would automatically tend toward full employment. 2. Explain why Keynes rejected the views of the classical economists. 3. Compare the views of Keynes and the classical economists with regard to the proper role of government. s you discovered in Chapter 10, unemployment and inflation impose costs on our society. Today, many AmericansRead MoreOne Significant Change That Has Occurred in the World Between 1900 and 2005. Explain the Impact This Change Has Made on Our Lives and Why It Is an Important Change.163893 Words   |  656 PagesHistorical Thinking and Other Unnatural Acts: Charting the Future of Teaching the Past Sharon Hartman Strom, Political Woman: Florence Luscomb and the Legacy of Radical Reform Michael Adas, ed., Agricultural and Pastoral Societies in Ancient and Classical History Jack Metzgar, Striking Steel: Solidarity Remembered Janis Appier, Policing Women: The Sexual Politics of Law Enforcement and the LAPD Allen Hunter, ed., Rethinking the Cold War Eric Foner, ed., The New American History. Revised and ExpandedRead MoreEurope Economic Crisis55278 Words   |  222 Pagescomplemented by strategic investments and measures to shore up business and labour markets. The overall fiscal stimulus, including the effects of automatic stabilisers, amounts to 5% of GDP in the EU. According to the Commission s analysis, unless policies take up the new challenges, potential GDP in the EU could fall to a permanently lower trajectory, due to several factors. First, protracted spells of unemployment in the workforce tend to lead to a permanent loss of skills. Second, the stock of equipment