Classical vs. Keynesian
| Topic | Classical | Keynesian |
|---|---|---|
| Modern followers | Neoclassical Supply siders Adam Smith J. B. Say David Richards Alfred Marshal | Neokeynesians J. M. Canes |
| Say's Law | Supplies creates its own demand. Production = income = spending Under-spending is unlikely | Depressions refute Say's law Demand creates its own supply Underspending persist |
| Savings and Investment | Savings = Investment income | Savings ≠ Investment Different motivations |
| Loanable Funds Market | Table Cell | Investment from savings, cash, checking, accounts Leanding creates money which causes supply of money increase. Inflation and unemployment is unstable. |
| Wage/price flexibility | If AD decrease, price level decrease and assumes competition | Inflexible downward Flexible upward only |
| Supply Curve | Vertical | Horizontal |
| Output and Employment | AS determines output and employment | AD determines output and employment |
| Unemployment | Rarely exist due to wage/price flexibility Causes: external-war | Usually exist Causes: external-war internal-savings ≠ investment |
| Aggregate Demand (AD) | AD determines the price level AD is reasonably stable if money supply is stable | AD changes due to the determinants AD is unstable even if money supply is stable due to fluctuations |
| Basic Equation | MV = P x Q | C + Ig + G + Xn = GDP |
| Role of Government | Monetary rule maintain a money supply Laissez Faire is best Economy is self regulating | Fiscal policy means Active government Economy is not self regulating |
| Inflation | Caused by too much money | Caused by too much demand |
| How long the short run is | Very short time | Long time |
| Emphasis Today | Microeconomics | Macroeconomics |
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