Macroeconomics Unit 3: Classical vs Keynesian

Study Notes

Classical Macroeconomics

Classical economics, established by thinkers like Adam Smith, David Ricardo, and John Stuart Mill, argues that market economies operate effectively without government intervention.
Emphasizes the belief that markets naturally adjust to achieve optimal macroeconomic performance.
Advocates for laissez-faire policies, viewing economic fluctuations as natural outcomes of individual decisions.

Unemployment Perspectives

Classical economists view unemployment as a matter of personal responsibility, suggesting individuals can always find some form of employment.
Unemployment is considered a choice rather than a market failure, linked to individual preferences for job types and wages.

Focus on Economic Growth

Central to classical economics is the notion that saving fuels growth, leading to investment that enhances production capacity.
Prioritizes production as the primary solution to economic issues such as recessions and unemployment.

Opposition to Monetary Solutions

Classical economists tend to downplay the importance of monetary policies, viewing them as distractions from fundamental economic variables.

Keynesian Economics

Founded by John Maynard Keynes, this school of thought posits that market economies are inherently unstable and require government intervention to stabilize them.
Opposes the laissez-faire approach, insisting that government action is necessary to address market flaws.

Views on Economic Fluctuations

Keynesians believe that fluctuations in the economy can be controlled through fiscal and monetary policies.
Emphasize that active government involvement is crucial in mitigating economic downturns.

Approach to Unemployment

Keynesian economists assert that addressing unemployment during economic fluctuations is a societal responsibility rather than an individual one.
They advocate for providing jobs that match individuals' training and experience.

Growth and Monetary Policy

Keynesians view growth as driven by consumer spending rather than firm output, believing that firms will not produce unless there is demand.
Stress the role of government and central banks in stimulating consumer spending to promote economic recovery.

Overall Keynesian Perspective

Keynesian economics tends to emphasize short-term solutions to economic problems, which may sometimes overlook long-term implications.

Description

Explore the foundational theories of Classical Macroeconomics in this flashcard quiz. Learn about prominent economists like Adam Smith, David Ricardo, and John Stuart Mill. Understand the beliefs and principles that underpin classical economic thought, especially in contrast to Keynesian economics.