Classical Viewpoints Of Keynesian Economics

Patrick O’Donnell

Econ Essay

Throughout history and especially economics, there has been a broad spectrum of how to assess a economy and manage the money supply, price level, inflation, etc. Keynesian, Classical, and Monetarist perspectives have been present through history. There are three basic viewpoints of economics and each vary with different views and policies. They differ in the aspects of both monetary policy and fiscal policy. A typical person in each of their views might have select bias depending on their economic situation or what they believe is best for the country. With that said, each perspective have fundamental ideas that distinct the main economic viewpoints.

Classical economics stems from the the “wealth of nations”

Keynesian economist are hesitant to the idea that if left alone, markets will self correct. They want to see the government step in and quickly fix an economic issue. It is a theory of aggregate demand and how the government can manage the money supply and benefit the economy Keynesian economics main principle is that when an economy is in a depression or recession, it is the government's Job is lower taxes, which would stimulate demand. Rather than the classical viewpoint of not interfering and letting the economy self correct itself. It focuses on the economy in the short run instead of waiting and letting the economy self correct. For example, Keynesian economics counters the idea that lower wages can restore full employment. They are arguing that employers will not add employees to produce goods that cannot be sold because demand is low. Similarly, poor business conditions may cause companies to lower their capital investment, instead of taking advantage of lower prices to invest in new technology or capital. This would also have the effect of reducing overall employment. Keynesian economics is generally what we use today in our economy with some exceptions A person who believe in Keynesian economics is usually a democrat who believe government intervention is necessary for our country and our economy alone. They need to the government to set a minimum wage and increase or

They feel that inflation is the main problem of an economy and they can help deter inflation. They can buy and sell bonds to increase or decrease the money supply helping to keep prices stable and inflation constant. Monetarist strongly believe in the idea of one big central banks controlling the money supply going out ot the smaller banks. One tool montarist can use in terms of monetary policy is changing the reserve ratio. In other words, it is the amount of money that the banks can lend out to investors. Monetarists differ from keynesians in the ideology that monetary policy in more effective to control and manage the economy as a whole with wages, price levels, employment, money supply, inflation, etc. They believe that the government subsidized bank, known as the FED can control the economy and that fiscal policy only affects specific companies, and a small percentage of the population. Monetarist theory asserts that variations in the money supply have major influences on national output in the short run and on price levels over longer periods. A typical monetarists would be opposed to the government role of controlling taxes and wages and instead believe that the central bank can adversely control all of the necessary regulations the economy