Keynesian Economics Vs. Classical Economics Essay

Keynesian Economics Vs. Classical Economics - Essay ExampleThe Keynesian and Classical economics similarly differ on their understandings of the behavior of prices. Whereas classical economics view prices and wages as flexible, Keynesians view them as inflexible or sticky downwards. For this reason, Keynesians do not think prices hobo be relied on to quickly drop and pawn the adverse effects on employment that can result from a decline in score demand. Since prices do not drop, there is no mechanism to ensure that full employment will automatically be restored. The Classical and Keynesian economics also differ in the desirability of an active role by government in maintaining the economy as close as possible to a non-inflationary, actualize employment level of output. The Classical economics holds that the government should assume a less active role in stabilizing the economy. They believe that the economy if left hand alone will incline to run at its full (or natural) employmen t output (Tucker 484). Overall price and employment levels are the greatest concern in the economy. If government views its primary responsibility as keeping markets as free as possible, the resulting movement of wages and prices should lead to the adjustments necessary to ensure natural or full employment levels. Conversely, Keynesians believe the government should play a more lively function in stabilizing the economy. According to the Keynesian model, there is no reason to expect an economy, left alone, to reach a full employment level of output automatically (Tucker 484). According to Keynes, unemployment, or a recession, occurs due to escape of spending.