Classical And Keynesian Models, Unemployment And New Developments
In this essay we would try to elaborate on the macroeconomic ideas arising out of classical and Keynesian schools of thought and how each thought-process in similar and, at the same time, different from each other. We would also describe how both though-processes try to address the problem of unemployment facing an economy and what new macroeconomic ideologies have surfaced since 1980s.
Similarities and Differences in Keynesian and Classical Economic Thought
As Keynesian model of economic thinking succeeds the classical models set forth by Ricardo and his predecessors, it is no surprise that the former would have borrowed and incorporated theoretical inputs from the later. The first similarity is that both models extract their economic ideologies, in overall, from the fundamental principles of a free and capitalistic market economy where resources are allocated efficiently; In other words both schools are capitalistic in nature (Wills, n.d.).
The second partial similarity is that although Keynesians put considerable emphasis on stimulating the aggregate demand side of the economy in restoring production and employment to their natural levels from recessionary and inflationary gaps, it does not fully ignore the importance of the aggregate supply side of the economy (Pettinger, 2015) in managing the economic crises; aggregate supply side of an economy serves as the fundamental thesis of classicists.…