Introduction of Keynesian vs Classical Economic Theory

The economic theories of Keynesian dis disprove so many beliefs that were traditional regarding unemployment, investments, savings, and intervention of government in the economic matters. Many of the individual ideas, however, were found also in the Malthus and Hobson’s writings. Keynes did the efforts to make these ideas be accepted widely and the government should be using these ideas in their policies.

Say’s Law of Keynesian vs Classical Economic Theory

Say’s law was denied by Keynes because Keynes believed that equilibrium of investment and saving was not actually a simple matter that solely depends on the rate of interest. Instead, both investment and saving were actually determined by factors’ complex host in addition to the rate of interest, and any guarantee was not there that investment and saving would be equal necessarily at the economic activity’ level that eventually produces the full employment level in the country. Keynes also believed that labour unions and monopolies would eventually thwart the prices and wages’ fluid movement.

Investment Multiplier of Keynesian vs Classical Economic Theory

The investment multiplier actually depends on Marginal Propensity to consume numerical value. Keynes believed that there was the events chain that happens after the investment’s initial injection. There are multiple parties in the market that would trickle the money by consumption as well as saving portions until the value would be multiplied by the income. Keynes believed that if income changes, as well as levels, can be predicted then such predicted levels would by accident only be the level of full employment.

State of Equilibrium Less Than Full Employment

Determination of equilibrium theory of Keynes regarding real Gross Domestic Product, price, and level of employment focuses on the economic link between expenditures and aggregate income. Keynes used his model of income and expenditure to argue that the equilibrium level of the output of the economy or real GDP level might not be corresponding to the real GDP’s natural level. It was suggested by Keynes that compensatory taxation, as well as expenditures of the government, should be taken place so that under production and level of unemployment in the economy could be relieved.

Conclusion of Keynesian vs Classical Economic Theory

In a nutshell, it was stated by Keynes in his book’s preface ‘The General Theory’ that his macroeconomic theory’s comprehension requires the reader to get escape from the theory of Classical economic. The economics of Keynes differs from the economics of Classical. Government intervention was the main thing recommended by Keynes so that it could stimulate the wide economic growth and survival in the short run is essential for long-run economic performance. In the current scenario, ‘less government more governance’ idea is useful for investment in the private sector to lead growth in economic and the environment is created by the government to grow; this idea is similar to the idea of Classical.