Classical vs. Keynesian
Classical
- Followers
- Adam Smith
- J.B. Say
- David Ricard
- Alfred Marshall
- Say's Law
- Supply creates own demand
- Production = Income = Spending
- Underspending unlikely
- Whatever output produced will be demanded
- Savings and investment
- Savings = Investment income
- Savings (Leakage) = Investment (Injection)
- Loanable Funds Market
- Wage/Price Flexibility
- Supply Curve
- Output and Employment
- Unemployment
- Rarely exists because of wage/price flexibility
- Cause: external (war)
- Aggregate Demand
- Determines PL
- Stable if money supply is stable
- Basic equation
- Role of government
- Monetary policy maintains steady money supply
- Laissez-faire is best
- Self regulating economy
- Inflation
- How long the short run is
- Emphasis today
- Other
- Competition is good
- Invisible Hand
- Long run - Balance @ FE
- Trickle-Down effect - Help rich 1st, everyone else 2nd
Keynesian
- Followers
- Say's Law
- Depressions refute Say's Law
- Demand creates own supply
- Underspending persists
- Savings and investments
- Savings not equal to investment
- Different motivations
- Savings
- Future needs
- Precaution
- Habit
- Income level
- Interest rate
- Investment
- Interest rate
- Rate of profit
- Expectations
- Loanable Funds Market
- Investment from savings, cash, checking accounts
- Lending creates money -> Supply of money increases
- Inflation and unemployment are unstable
- Wage/price inflexibility
- Prices and wages inflexible downward
- Supply curve
- Output and Employment
- Unemployment
- Usually exists
- Causes:
- External (war)
- Internal (Savings not equal to investment
- Aggregate Demand
- Changes due to determinants
- Unstable even if money supply is stable due to fluctuations in investment spending
- Basic equation
- C + Ig + G + Xn
- 1973 - Present
- Role of Government
- Fiscal Policy - Tax and spend
- Active government
- Economy is not self regulating
- Inflation
- How long the short run is
- Emphasis Today
- Other
- Flawed competition
- AD is key; not AS
- Leaks + Savings = Recession
- Ratchet effects and Sticky Wages block Say's Law
- We are doomed in the long run
It would be ideal if you were to also explain the the terms used. For example The "invisible Hand" is when the government and economy are both self regulated. Also how the Say's Law is that of when production is the source of demand.
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