Classical Economics : The Long Run By The Eagles ( 1979 ) Essay

Classical Economics : The Long Run By The Eagles ( 1979 ) Essay

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Classical economics as postulated by the 19th century British economist David Ricardo states – in modern economic terms – that an economy will achieve its natural levels of employment (full employment) and reach its potential output on its own without any government intervention. While the economy may undergo periods of less than natural levels of employment or not yet reach its potential output, it will, in the long run do so. If Mr. Ricardo was still alive, his favorite album would be The Long Run by The Eagles (1979). Using modern economic terms to further describe classical economics, an economy will tend to operate at a level given by the long run aggregate supply curve. While many believe that the concepts of classical economics are for a by-gone era, that is not always the case. The new internet starts up Oliver, believes that it has positioned itself to create value in the market by applying classical economic theory (TechCrunch, 2016).
The classical economic concept with its laissez faire attitude of an economy eventual reaching its peak, in the long run, is antithetical to the economic theory put forth by John Maynard Keynes. In Keynesian economics, one should not wait for an economy to, in the long run, reach its potential output or reach its natural level of employment. In addition, this method changed the focus from the aggregate supply curve to the aggregate demand curve. In Keynesian economics, it is the change in the aggregate demand curve that creates a gap between an economy’s actual and potential output. Moreover, it postulates that these gaps can be long-lasting. For an example of just how long, think of the Great Depression. It lasted for over 10 years (FDR Library).
A drop in aggregate demand is referred to ...


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...gregate supply to the left. With the Keynesian economic focus of changing aggregate demand, they have no method in their tool box to modify changes in aggregate supply (Rittenberg and Tregarthen, 2012).
While people believe that the classical economic theory was largely discredited during the Great depression (Rittenberg and Tregarthen, 2012), the Keynesian economic tools of fiscal and monetary policies put into effect by Franklin Delano Roosevelt’s administration also have their detractors (UCLA Newsroom, 2004). Regardless, in regards to applying Keynesian economic policies toward the Great Depression, Former Federal Reserve Governor Ben S. Bernanke said “You 're right, we did it. We 're very sorry. … we won 't do it again” (Federal Reserve Board, 2002). Other economic theory must be developed to address some of the shortcomings of the Keynesian economic principles.

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