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Keynesian Economics Vs Classical Economics

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Macroeconomics have changed over the years and the developments coming from theories and philosophies put forward by the Keynesians and classical are very important. Both economic models aim to achieve an equilibrium economy from different views and this is important for us to understand the differences and similarities. The main difference between Keynesians and classical economics is the role played by government. Keynesians strongly believe that economy perform better with government intervention whereas classical believe that limited government intervention will make the economy better.
Keynesians economics founded by John Mynard Keynes who was an English economist and believed that market forces without government intervention led to …show more content…

In classical economics, they believe that if trade unions had less power over wages, flexibility in wages will allow free market to operate and promote supply side economics enabling long term economic growth. Keynesians don’t agree to this and say supply side economics may not always work since the supply side economics can’t deal with issues such as lack of demand.
Although the two economic models are so different, they have some similarities. They both agree and believe in free market although Keynesians say government should always regulate. The fact that classical economist believes in monetary policies, that means that they agree and believe in some sort of government intervention in economic business. The two models all target to achieve economic growth and reduce unemployment as well as achieve economic stability. Keynesians say that they don’t disagree with supply side economics and say that the supply side economics does not always work meaning that it’s one of the areas where the two models are …show more content…

They say that without government, the market forces will drive the wages lower and therefore allow employers to employ more people. This will lead to less unemployment. If government was to get involved, they will increase wages and set minimum wage rates and because these wages are way higher than what the employers want to pay, this will mean that employers end up employing less people, therefore creating unemployment. Classical economists also believe that wages and prices should be flexible and are set by market forces and this determine the balance in labour market and in the long run, because more people are in employment, that will mean that they have spending power and this will create more demand for goods and services meaning more job creations. Keynesians believe that government spending is key for reducing unemployment. They say that if government spend more, this will create aggregate demand and therefore create the need for employers to employ more people to meet that demand thereby reducing

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