Economic Theory Vs Classical Economic Theories

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Economics is the study of how resources are distributed throughout an economy, and how to create stability and growth throughout the economy. Like today, history was filled with the debate of government involvement, fiscal policies, and how to run the economy. Classical, Keynesian, and Monetarist Economic Theories are no different, they take their own approach when dealing with fiscal policy, government involvement, and consumer spending, to reach the same goal of creating the most successful economy.
The Classical Economic Theory, became a mainstream idea around, 1776 and continued to be a widely accepted idea until around the 1930’s. Classical Economist use Say’s Law as the base principle. Say’s Law is the law of the market and is used
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Many know The Great Depression hit America at this time, leaving more Americans without money, however the supply had not changed, there was still the same technology and resources and it was clear to Keynesian Economic that a self adjusting economy would not cut it anymore. This theory is the idea that demand determines the amount goods supplied. The Keynesian Economists believed aggregate demand is influenced by both the public and private sectors; meaning they believed the government had a role in the influence of economic choices. The belief that the velocity was unstable and that the market would not return to potential output on its own was a large argument they had. As aggregate demand affects the supply (production, employment and inflation) they saw it as the government's role to build it back up using monetary and fiscal policies. Similar to Classical economists, Keynesian believe the economy comprises the same part: consumer spending, government spending, and business investments. However the major difference is that Keynesians believed government spending could help account for the lack of consumer spending and investment. The Keynesian theory also was based on the idea that wages and prices were sticky and that is would give aggregate supply a horizontal line in the short run. Overall, the main idea of the Keynesian Economist was to save and create jobs and…show more content…
They all are aiming for the same goal: growing the economy. Classical Economist aim for an open market economy and believe it will expand on its own. Focusing on Say’s law and the idea supply will create its own demand. Keynesian Economist have the polar opposite ideas, they believe demand determined the amount supplied. They focus on creating long term plans and the idea velocity is unstable and that the economy will not grow without the help from the government with the use of monetary and fiscal policies. Monetarist school of thought went against Keynesian, with the main idea that growth in money supply would lead to growth in the economy. Monetarist focused on the rules they believed the Fed should have, which included the monetary policies within. However, they believed fiscal policies were intruding to the free market. Even though, these theories are not in debate today, Countries still struggle to find the perfect way to run their economy, and look back at the past methods for
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