Classical Economics Essay

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Two contrasting schools of thought relating to macroeconomics are classical economics and Keynesian economics. Their respective theories have persisted to the present day despite having been conceived centuries ago (Classical theory, 2016). Their significance is still relevant today, as their value lies in certain historical events that tested and tempered them. Events that shook the foundations of one institution while paving a path for the other. This paper will give a brief introduction of each one followed by an analysis of their underlying concepts in order to provide an accurate contrast and comparison. Late 20th century developments in macroeconomics will also be discussed, to serve as a testament to society’s continued progression of…show more content…
Classical economics was firmly established by an economist named David Ricardo, which held favor in the realm of economic theory until the history changing event of the Great Depression in 1929 (Rittenberg & Tregarthen, 2012). Keynesian economics, named after its founder economist John Maynard Keynes, gained traction around the time of the Great Depression. According to Rittenberg and Tregarthen (2012), Keyne proposed alternative views that helped make sense of the tumultuous state of the economy and account for what was happening in both Britain and USA during the 1930s. Essentially, it succeeded and filled in the gaps, so to speak, where classical economics failed. In the most basic sense, as described by Rittenberg and Tregarthen (2012), classical economics favors the long run and assumes that changes in the economy are primarily caused by shifts in aggregate supply. This focus on the long run aggregate supply curve also relies on the THE AGGREGATE VALUE PARADIGM SHIFT…show more content…
According to Rittenberg & Tregarthen (2012), since the 1980s a movement called New Keynesian economics has taken center stage in explaining macroeconomic changes occurring over the last three decades. Borrowing concepts based on monetary policy practices and the focus of classical theory on aggregate supply, New Keynesian economics takes these aspects into consideration for both the short run and long run. Additionally, it has also included a greater focus on the relation of microeconomic conditions with macroeconomic phenomena (Rittenberg & Tregarthen,
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