Comparison of Keynesian and Classical Economic Theories

Assignment A

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
Comparison of the two different schools of economic thoughts-................................................3
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
Assignment is something which acts as the task. These are the tasks given to the students by their
teachers as well as the tutors for completing in the particular time. The main purpose of the
assignment as it provides the opportunities to the students in learning, practising and
demonstrating as how they have achieved goals of learning. This assignment will discuss the two
different schools for the comparison of the theories such as the Keynesian as well as the classical
theories as how these theories work by the perspective of the two different schools of the
economics thought.
Comparison of the two different schools of economic thoughts-
The Keynesian economic theory has been developed by the British economists John
Maynard Keynes during the period 1930s. This theory was developed to understand the great
depression in the economy. The Keynesian school of economic thought has come up with the
two assumptions such as firstly, the people as well as the companies has the ability to behave
rationally and with the rational expectations (Skidelsky, 2018). Second assumptions is that, there
are wide range of the market inefficiencies such as the sticky wages and the imperfect
competition in the market. The Keynesian school of thought mainly focuses on the short term
problems as they consider the issues as the immediate problems which the government must
ensure to deal with these issues immediately for the assurance of the long term growth of the
economy. These schools argued that the economy can be under the full capacity as they are
considered for the specific time because of the imperfect markets.
The Keynesian school of thought, the business cycle occurs by the variations in rate of
investment which has been caused by the fluctuations in marginal efficiency of the capital.
Marginal efficiency of capital can be defined as the profits which are expected by the new
investments (Prates, 2020). This school of thought was much successful as this has lowered the
public debt, unemployment as well as the reduction of inequality. The great depression has
motivated the Keynes for thinking differently for the nature of the economy and from this theory
they were able to establish the real world implications which could impact the implications for
the society as well in the economic crisis. The economic school of the Keynesian argues that the
demand has the ability to drive the supply as well as by this the Heathy economy spends much
and invest more instead of saving the money (Whalen, 2020).