Economics for Business Essay

This essay analyzes the Neo-Keynesian and Classical Supply Side theories, highlighting their key differences and impact on business operations and financial stability. It examines the role of government spending, fiscal policy, and supply-side economics in managing economic conditions and achieving long-term growth.

Economics for Business

Table of Contents
INTRODUCTION...........................................................................................................................1
Main body...............................................................................................................................1
CONCLUSION................................................................................................................................8
REFERENCES ...............................................................................................................................9

INTRODUCTION
The economic conditions play a very crucial and vital role in the development of a firm
as well as the government. The government will see through an effective handling of operations
that will help in better rise in the economic stability of nations as well as an organisation. The
government will look out for the innovative measures to maintain the economic viability and
handling of operations that will help in good rise in the financial stability and handling of the
operational capability of an organisation. This will help in good rise in capability and handling of
business operations that will help in effective growth and development of operations and actions
that are followed by the European government that will help in suitable rise in operational
capability (Gelli, A. and et.al., 2015).
For this, the government will adopt and follow the Keynesian and Classical Supply Side
Policies that will help in good handling of the economic issues for the long-term growth and
development. Besides this, it will help in good handling of various sorts of problems that are
faced by an organisation or a nation while operating in an international market place.
Main body
The economic conditions must be taken in consideration by the government for long-term
development and increase in the functionality of an organisation that will help in good rise in the
operational capability. The firm will see through an effective and better meeting of goals and
actions that will help in suitable rise in operational capability and thus will help in bringing
financial stability in the European countries (Picard, 2014).
To handle the economic constraints and the effective handling of wide range of
operations that will help ineffective management of the financial activities, the government will
adopt use of Neo Keynesian and classical supply side policies that will help in good handling of
the operations and thus will support a good handling of functions and thus will aid to authority to
bring the financial stability.
Neo Keynesian Theory and Policies
It is a form of macroeconomic theories that help in the good rise in meeting of policies
and actions on short run. It helps the government or the economies to handle wide range of
operations to be handled and managed by the European government. This is beneficial in low
economic growth phase such as inflation and recessions that impacts economy and business
within the nation in a very adverse way.
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This theory was presented after the Great Depression in European continent that has
affected the economic viability of various countries. This has helped in incorporating the
concepts of aggregated supply management with classical economic factors and policies that are
followed by government to maintain the financial stability. Besides this, it helps the government
to set monetary policies for banks and fiscal policies. The Neo Keynesian modal of economic
management has been the standard model of maintaining economy for the European countries in
Post World War II and Great depression era (Gelli, A. and et.al., 2015).
It helps in meeting the aggregated demands and lowering negative impact of falling
economy by increasing the governmental expanses and reducing the taxes in order to handle the
requirement of citizens. This is a beneficial tool to achieve the optimal economic performance by
the government and reduce financial glitches that has been faced by an organisation.
Although, being the “demand side” theory, it helps in gaining a good rise in economy
over a short run period, it has the effect for long term that will help in effective increase in
operations and thus facilitates good handling of the operational capacity.
For example, the Keynesian theory that is implemented by the European government in
post Great depression phase has lead an impact on various countries and reduce the effect of
decreasing economic stability that has impacted the growth and rise in operations of firm in a
better way. The policies and principles of economic viability that are implemented then, are still
been practice with certain modification and alteration that will help in good rise in operational
capability and financial stability that has been faced by an organisation.
Various sort of graphs are been presented by Keynes in order to showcase the impact of
the different factors of economic policies and functions especially in the case of long run
aggregated supply (LRAS) which has helped in the effective growth of the development policies
which are been followed by the firm or the government (Picard, 2014). Some graphs and
depictions that are been taken in thought process are as follows:
 Classical supply theory:
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The depiction of LRAS in Classical supply theory and model is inelastic and straight. It is
dependent of level of investment, limit of capital and productivity of Labour. It does not help in
rise in Real GDP.
 Long Run Aggregated Supply:
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As from the graph, it can be seen that the proper handling of the operations are to be
followed that will support a good rise in the functionality of the organisation to identify the
relation between the productivity of labour (PL) and real GDP (Y). In the later term, it was
replaced by Price and Quantity, respectively. From the graph it can be said that:
 Wages are sticky downwards.
 Negative multiplier effect. If the aggregated demand falls, it causes others to less income
and spending capacity of the government.
 In the condition of recession, people lose confidence and save more. By saving and
reducing the purchasing, the demand reduces.
This helps in good rise in the operational capability and financial stability of the firm
(Hettne, 2016).
 Demand deficient unemployment
It is the condition when loss of demand causes a condition in the reduction of the jobs
and thus lead to unemployment. This impacts the financial stability and the economic growth of
the company that will help in the good rise in the operations and thus facilitates an effective rise
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in friction and conflict among the society and create a socio economic gap. Besides this, the lack
of jobs and man force will lead to low growth in aggregated demands (Duranton, Henderson and
Strange, 2015.).
Classical supply side theory and policies:
It is also known as the Classical political economy or the liberal economics policies and
theories, that originated in Britain and later on was implemented in all over Europe with
variation. It is basically Market economies and self regulating and thus help in good rise in
governance of the authority, that helps in natural laws of production and exchange of good s and
services that are been taken in consideration by the organisation or the government. According to
this theory, the wealth or the financial resources of the nation is been identified by the income
and the expenses carried out buy the government of the country. Besides this, it also helps is
good division of labour and ensure the good accumulation of resources owned by the country. It
emphasis on the common interest of people and importance of competition for gaining a
financial stability. Other than this, it is based on the free trade and assessment of expenses
followed by government. This is done by the adoption and implementation of supply side
economic policy that will help in lowering of the taxes and decreasing in regulation that will help
in good rise in providing of high quality goods and services by the firm or government on the
nominal cost. It will help in reducing the prices and unemployment (Lutz, Butz and Samir,
2017).
The supply side will include the supplying of the high quality goods and services and cut
the taxation that will help in good rise in the revenue of government. Besides this, it will increase
the efficiency of resource use. This is been done by Marginal tax rate that impacts the generation
of the revenue that will act as the additional income and is retained by the tax payer. But, the
classical Supply Side theory is inadequate to handle the monetary and financial issue that are
been faced by the government. Also, it can cause the government to decide the prices of
commodities and services. For example, if the price of a commodity is £1 per unit, and marginal
tax is 40%. It will also cost 60 % of its selling price, yet the tag of£1 per unit describes the
manufacturing cost of the product. This creates the difference in pricing of good s and services
by government (Anderson And et.al., 2016.).
It is different from the concepts that are been used by the Keynesian economics that can
impact the operations and thus will handle the operations related to the financial stability of the
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organisation. While Keynesian theory help in the management of aggregated demands of goods
and services, Classical Supply Side theory will just focus on the flow of monetary resources and
thus known as the monetarism theory. It will help in controlling the monetary resources of the
firm and help in tackling the condition of inflation and recession and establishing the economy of
the nation, strongly, in a very effective manner. Also, it influences the supply and demand by
impacting the customers of buyer interest in a very effective way. It has been a major theory that
was followed during the Great depression and inflation period (Metcalfe, 2018).
The major argument related to the Classical supply side model or theory is that it creates
the demand of its supplied good s and services, by its own. The Keynesian concept of aggregated
supply and demand will interlink here and thus help in the proper management of the gross
domestic product and services. It will help the government of European nation to improve the
output and decrease the cost of product and services offered to people or buyers.
Difference between the Neo Keynesian policies and Classical supply side theory and policy:
There are wide range of differences between the Neo Keynesian policies and Classical
supply side theory that will help in good handling of the business operations and thus will help in
gaining a good handling of the operations and measures that are been followed by the
government to get the long term growth benefits. Some key differences that are been taken in
consideration by the organisation are as follows:
 While Classical supply side theory and model is based on the supplying or delivering side
of the trade activity, the Neo Keynesian policies are demand based and are affected by
the requirement of the customers and buyers for the high quality products and services
(Dranove And et.al., 2016).
 The Classical supply side is been followed by the use of consumption of the high quality
product and services that will help in good management of the needs and demands of the
customers. On the other hand, the Keynesian theory is based on the increase in GDP and
demand of the customers that will help in good rise in the operations of the trade
activities that will be carried within market.
 The Classical Supply side theory follows the concept of consists of the measures taken
under depression economics, which will help in good handling of the business operations
that will help in good rise in operations and thus facilitates the meeting of the set goals
and objectives. On the other hand, New Keynesian theory is based on the concepts of
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aggregated demand that will help in suitable rise in the operations and thus will help in
increase in the capability of government to meet peoples needs and demands (Coyle,
2014).
Polices related to that are been followed under Neo Keynesian theory in regard with the
Classical supply theory:
Some major policies that are related to the Keynesian theories that are been followed by
the firm that will help in good handling of economic differences and issues. This will help in
maintaining of financial stability of the firm. Some major policies that are been taken under
consideration are as follows:
 Government Spending: It is the most classical model that involves the government to
intervene in managing the economy. However, the Neo Keynesian theory helps in the
better handling of the operations that supports the effective governmental expenditure
and thus fall of the investment in the private sector. In such case the intervention of
authority increases.
 Fiscal Policy: The Classical supply theory place the emphasis on the use of this policy to
manage aggregated demands in the economy. It is basically monetarism i.e. based on the
flow and supply of the money as the resource. On the other hand, the Neo Keynesian
policies help in the better rise in the operational capability and financial stability of the
firm. During the period of inflation and recession, rejecting the austerity policy (McCabe
and Snyder, 2015.).
 Government borrowing: As per the Classical supply theory, the government borrowing
and balancing the business will help in balancing the budget. It involves the increase of
the high governmental expenses and reduction of taxes imposed on people. This is
believed to get the economic stability. In contradiction to this, the Keynesian theory
supports the fact that the borrowing by the government may be necessary as it helps in
increase in aggregated demands and cost cut the unemployment benefits.
 Supply side policies: As per the Classical theory, that in order to gain the economic
stability is the enabling of the free market to operate. This involves the reduction in the
power of trade unions that prevents the wage inflexibility and thus will help in the growth
of the supply side economics that help in promoting the long term economic growth. On
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the other hand, the Keynesian theories have not denied the existence and importance of
Supply side theories. However, it considers them to be inadequate to handle the
conditions like deep recession and inability to handle the fundamental problems caused
by lack of demands (Ward and Begg, 2016).
These policies and actions will help the European government to make the effective plan
to handle the financial crisis that will help in good management of the aggregated supply and the
demands of the customers or buyers in an economy, in an effective and better way. Besides this,
it will support an effective rise in operational capacity and thus will help in generation or
production of high quality product and services to be distributed and delivered to people or
buyers on the cheap and low cost, even during the phase of economic depression and inflation in
order to maintain the sustainability of the economy (Mulhearn and Vane, 2015).
CONCLUSION
Thus, from the analysis, this can be said that the effective handling of the operations that
will help in good rise in the operations and meeting of the targeted goals and operations in ans
effective way. The assessment of the Classical Supply side and Neo Keynesian theories and
models with its various policies have been the key tool to handle the business operations and
processes that are been followed by the European government. The various policies associated
with both the theories are been accessed in order to gain the proper idea about the effective
measures that are been followed by the organisation and thus, will help in suitable rise in the
customer satisfaction and economic viability of the nation or the government.
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REFERENCES
Books and journals
Mulhearn, C. and Vane, H., 2015. Economics for business. Macmillan International Higher
Education.
Ward, D. and Begg, D., 2016. Economics for business. McGraw-Hill.
McCabe, M.J. and Snyder, C.M., 2015. Does online availability increase citations? Theory and
evidence from a panel of economics and business journals. Review of Economics and
Statistics, 97(1), pp.144-165.
Coyle, D., 2014. GDP: A brief but affectionate history. Economics Books.
Dranove, D.S. And et.al., 2016. Economics of Strategy.
Metcalfe, S. ed., 2018. Evolutionary theories of economic and technological change: present
status and future prospects(Vol. 44). Routledge.
Anderson, D.R. And et.al., 2016. Statistics for business & economics. Nelson Education.
Lutz, W., Butz, W.P. and Samir, K.E. eds., 2017. World Population & Human Capital in the
Twenty-First Century: An Overview. Oxford University Press.
Duranton, G., Henderson, V. and Strange, W. eds., 2015. Handbook of regional and urban
economics. Elsevier.
Hettne, B. ed., 2016. The new regionalism and the future of security and development (Vol. 4).
Springer.
Picard, R.G. ed., 2014. Media firms: Structures, operations, and performance. Routledge.
Gelli, A. and et.al., 2015. Value chains and nutrition: a framework to support the identification,
design, and evaluation of interventions.
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