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Classical Economic Theories and Keynesian Economic Theories - Essay Example
Pages 4 (1004 words)
Economic theories have been developed over the years on the basis of the changes in the economies and circumstances in the economy. These theories have been bifurcated into various categories such as classical, neo-classical, Keynesian and so on. Classical economic theories refer to those theories and beliefs that have been propounded by experts in the 18th and 19th centuries (Peet, 2009)…
This essay makes an attempt to compare the classical economic theories and Keynesian economic theories. The essay takes a descriptive approach where economic theories of two different periods are compared and contrasted from three angles, namely beliefs, theories and policies.
Firstly on the basis of beliefs-Malthus, one of the classical economists believed that, if increase in population was not enough to depress the rate of long term growth it would affect the diminishing returns. And also believed that to ensure growth the government should adopt laissez faire approach which included free trade and free markets. In addition to this, Adam Smith, the Father of Economics who introduced the notion of invisible hand supported the economic activity and led to optimum equilibrium (Stoft, 2002). They also viewed if there is disequilibrium between leakages and injections then the price would adjust to restore equilibrium. In spite of these beliefs they were not much happy in the initial periods but later they had confident with them that their approaches will lead to success in the market. But all this beliefs were strongly opposed by John Maynard Keynes in his Keynesian theory. ...