Difference Between Classical Economics And Macroeconomics
analytical Essay
1291 words
Macroeconomics presents the educational function to help students become the future economics specialist, forming a critical thinking about the complex functioning of the contemporary economy. Thus, the field of study of Macroeconomics has evolved over time, through a long process of confrontation of various theories of thinking and economic application. Moreover, Macroeconomia investigates the economy at a national level as a whole, targeting the aggregation of individual economic behaviors across the economy as well as the resulting global effects: unemployment, inflation, cyclical development, imbalance in external economic exchanges, external economic relations. Accordingly, the macroeconomic outcomes are the outputs of the aggregate …show more content…
In this essay, the author
- Explains that macroeconomics presents the educational function to help students become the future economics specialist, forming a critical thinking about the complex functioning of the contemporary economy.
- Explains that macroeconomic outcomes are the outputs of the aggregate economic activities that the market validates, recognizing their usefulness to meet the multitude of social needs.
- Explains that macroeconomic results are measured under the existential (physical) and value-monetary aspects in each country based on a theoretical and methodological conception of the sources and mechanisms of obtaining these results.
- Explains that in order to understand the similarities and differences in keynesian and classical economic thinking, it is important to know the basics of each and their relationship to each other.
- Explains that adam smith, known as the "father of capitalism", has contributed a lot to classical economics. he is known for his idea of an invisible hand guiding people and how self-interested decisions actually benefit society.
- Explains that keynesian economic theory is based on related expenditures and aggregate demand defining the economic market.
- Explains that classical economic theory is rooted in the concept of a laissez-faire economic market, which often requires government intervention. it allows at the same time the intervention of the individual acting on his/her own interest.
- Argues that the similarities between these two theories may be based on the fact that both j.m. keynes and adam smith are part of the capitalist world.
- Compares the classical economics model and the keynesian economy, arguing that the economy may be under full capacity due to imperfect markets.
- Explains that macroeconomics assumes that the long-term aggregate supply curve is inelastic and any deviation from the full job will be temporary, a controversial topic by keynesian specialists.
- Explains that the theories of unemployment differ from the fact that aggregate supply and the role of aggregate demand influence economic growth. classics economists believe that unemployment comes from supply factors, friction unemployment, and structural factors.
- Argues that keynes' contribution in the creation of macroeconomics is praiseworthy because of the theories through which the link between the labor market and the national economy is revealed.
- Explains that the american economy was going through a deep crisis in the early 1980s, with 50% increase in bankruptcy compared with the previous year. the recovery was relatively short, since the inflation rate remained below 5%.
- Explains that the fed's expansionist policy was highlighted after the 2001 recession and a decline after 2007, 2008 starting with precarious forecasts for its global rehabilitation, being considered "the worst financial crisis in nearly 80 years."
- Explains that the national economy can be redressed because of "ideas associated with macroeconomic theory and politics," including "elements of keynesian economics, monetarism, and new classical economy."
Classical economic theory allows at the same time the intervention of the individual acting on his / her own interest, being responsible but at the same time free to make the necessary economic decisions that bring personal benefits, which gives transparency economic resources, these being allocated according to the wishes of individuals and enterprises in the market. However, Classical economic theory uses value theory to determine prices in the economic …show more content…
The classical economy underlines the fact that free markets lead to an efficient outcome and that it is self-regulating compared to the Keynesian economy, which argues that the economy may be under full capacity for a considerable time due to imperfect markets.
In the study of macroeconomics, the classical economy assumes that the long-term aggregate supply curve is inelastic, and as a result, any deviation from the full job will be temporary, a totally controversial topic by Keynesian specialists. The theories of unemployment are also totally different from the fact that the form of aggregate supply and the role of aggregate demand have a major influence in influencing economic
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- The Classical Economic Theoryanalytical essayClassical economic theories are the priority themes in this video. It mainly emphasizes the causes and effects of a classical theory principle. Also, generalizing what economics beliefs are and what impacts they have on society. Refers to the economy as being vulnerable. A Scottish philosopher, by the name of Adam Smith examines society relating it to a world of business affairs. He writes a book called “Wealth of Nations”, which is known as the starting point for classical economist’s theories. According to Wealth of Nations, (Adam Smith book) he believes that price wages and interest rates are considered to be flexible. Classical economists strongly believe that the economy is self- regulating. If there is an increase in spending, aggregate
In this essay, the author
- Explains that classical economic theories emphasize the causes and effects of a classical theory principle and generalize what economics beliefs are and what impacts they have on society.
- Explains that classical economists believe that supply creates its own demand and that a market economy would have automatically gone toward full employment.
- Explains that classical economists based their morals and standards from a french word laissez faire, which means let it be.
- Explains that they agree with the classical economics theories. the theory that stands out more, is supply creates its own demand.
- Analyzes how robert reich speaks on behalf of a democratic point of view from the clinton administration, as former secretary of labor. reich's mindset is to be able to get out of an economic recession.
- Explains that the government needs to spend more than usual to get out of debt. reich believes that government spending is best for the entire economy to grow and in the long run it’ll benefit the citizens of the united states.
- Opines that the republicans don't agree with government spending so they're against the idea. there's no other way for the economy to stimulate.
1668 wordsRead More - 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
In this essay, the author
- Explains classical economics as postulated by the 19th century british economist david ricardo that an economy will achieve its natural levels of employment and reach its potential output on its own without any government intervention.
- Explains that 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.
- Explains that a drop in aggregate demand is referred to by keynesian economists as recessionary gap. when the demands for goods drop, businesses become reluctant to supply addition goods and services.
- Explains that classical and keynesian economics differ in how to handle a drop in the natural level of employment or the lowering of potential output.
- Explains that fiscal policies include increasing government purchases to increase aggregate demand, while monetary policies may include repurchasing government debt to raise money supply and lower interest rates.
- Explains that fiscal and monetary policies can have the effect of producing an increased employment and an increase in the real gdp, but they come at a price: they can push the economy into an inflationary gap.
- Explains that while classical economic theory was discredited during the great depression, the keynesian economic tools of fiscal and monetary policies put into effect by franklin delano roosevelt's administration also have their detractors.
914 wordsRead More - Keynesian Economics Vs Classical Economicsexplanatory essayAnswer: In economics there are two main theories, Classical economics and Keynesian economics. In our essay we will compare between this two theories.
In this essay, the author
- Explains that in economics there are two main theories, classical and keynesian, and compares them.
- Explains that classical economists assume that nominal wages and prices are fully flexible. if inflation rises, they will also rise by the same amount and the real wage ratio will remain unchanged.
- Explains that in classical economics, economy automatically and quickly adjusts recession. prices and wages fall during recession which affects profits positively.
- Explains the assumption that in classical economics as is vertical and always at the full employment level. this crucially important assumption will be responsible for the implications of fiscal and monetary policy in the classical world.
- Explains that in classical economics, an increase in government spending is not helpful to bring an economy out of recession.
- Explains that in keynesian economics, prices and wages are sticky downwards and do not fall during recession. govt. spending is necessary to stimulate the economy to bring it out of a recession
- Explains that in keynesian economy, monetary growth plays a role to make economy stable.
- Explains that keynesian economy is more concerned with gdp growth and unemployment. the ability of workers and their contribution to the economy matters more than the costs of goods. fiscal and monetary stabilization are effective.
- Explains that classicalists are more focused on long-term results, while keynesians care more about short term problems, which they think need immediate attention.
784 wordsRead More - The Pros And Cons Of Macropolandcomparative essayIn conclusion, regardless of Macropoland’s current economic condition, it is fair to say that it is all part of the business cycle. The business cycle has three parts: peak, trough, and peak. The peak is the date that the recession starts. In Macropoland’s case, the peak would be at the beginning of 1973, its trough somewhere between 1973 and 1974, and then its peak again at 1974. In the second scenario, Macropoland is either at its trough, where it is about to head up again because of its low inflation rate, or it is at its expansion, on its way to heading to its next peak.
In this essay, the author
- Explains that macropoland, a natural gas and oil importer, has an unemployment rate of about 4.5% and an inflation rate. however, these rates fell below their potential during two specific time periods.
- Explains that unemployment and inflation rates are higher than normal, so we can assume that the aggregate-demand curve is downward-sloping. when the economy's demand has slowed down, businesses have to raise prices and lay off workers to preserve profits.
- Explains that the aggregate demand curve slopes downward due to the wealth effect and the interest-rate effect.
- Explains the four main causes of recessions: problems in the financial markets, negative supply shifts, and inflation fighting.
- Explains that a negative supply shift causes recessions, stagflation, and inflation fighting. if output runs above potential for too long, the economy overheats.
- Explains that macropoland's unemployment rate has edged up to 9% and the inflation rate is low at 0.4%. deflation means that demand is so low that businesses cannot raise their prices.
- Concludes that macropoland's current economic condition is part of the business cycle, which has three parts: peak, trough, and peak.
719 wordsRead More - Keynes Macroeconomic Theoryanalytical essayHow did Keynes's idea of the reasons for the macro-economic instability challenge the prevailing economic orthodoxy? After 100 years of the industrialization era modern economics began to see a change and shift of ideas. These ideas were brought to the front by John Maynard Keynes, who in 1936 transformed much of the modern economics by a single book The General Theory of Employment, Interest and Money. Keynes also wrote other titles as well as A Tract on Monetary Reform (1923)' which was an attempt to secure a monetary policy instead of the gold standard.
In this essay, the author
- Explains how keynes's idea of the reasons for the macro-economic instability challenged the prevailing economic orthodoxy.
- Explains that keynes argued against going back to the gold standards because it would affect british exports, as well as britain's economy adversely. he wrote a tract on monetary reform (1923).
- Explains that england went back to the gold standard due to keynes's orthodox ideas and disaster struck.
- Analyzes how keynes tried to prove says law's orthodox theory wrong and identify the connections between the gold standard and the level of employment in britain by writing treatise on money (1930).
- Analyzes how keynes's book the general theory of employment, interest, and money' was inspired by other economists. michael tugan-baranowsky said that the imbalance between savings and investments was at the heart of the business cycle.
- Explains knut wicksell's theory of national income, which led to the keynesian revolution.
- Explains that wicksell's idea of market rates was abandoned, but his idea was carried on and transformed to the national income. foster and catchings also developed the concept of circular flow of spending.
- Explains that monetary cranks came up with schemes to make people send their money as stamped money. the longer money was not spent the more it would decrease in value.
- Explains how keynes's book the general theory of employment, interest, and money' was widely accepted as other economists had familiarized people with similar ideas and argued against the orthodox theories of say’s law.
- Analyzes keynes' general theory of employment's analysis of the causes of unemployment. he points out that savings need to be spent so that investment does not fall and as a result unemployment doesn't rise.
- Argues that keynes' 'general theory' was opposite to the old theory that the interest rate formed equality amongst savings and investment and that decrease in wages lead to full employment.
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In this essay, the author
- Explains that monetary policy is one of the tools a national government uses to influence its economy.
- Explains that the economy experienced neither significant unemployment nor inflation between 1996 and 2000, but that wishful thinking ended in march 2001. since 1970, real gdp has declined in five periods.
- Explains that the u.s. economy has weakened considerably since the federal reserve board submitted its previous monetary policy report to the congress.
- Cites university of phoenix's mmpbl-501 web site. economics for managerial decision making.
- Explains that the economy is the backbone of society. there are many factors that operate in, and govern our society's economic structure.
- Explains the effects of monetary policy on the unemployment rate, gdp gap, and okun’s law. economists disagree about the effectiveness of the policy, especially its effectiveness in the long run.
- Explains that a monetary policy that persistently attempts to keep short-term real rates low will lead to higher inflation and higher nominal interest rates, with no permanent increases in the growth of output or decreases in unemployment.
- Explains how changes in real interest rates affect the public's demand for goods and services by altering borrowing costs, availability of bank loans, wealth of households, and foreign exchange rates.
- Explains that easy monetary policy may be inflationary if initial equilibrium is at or near full-employment.
- Explains that money is created by single commercial banks, banking system, and the federal reserve bank system.
1670 wordsRead More - Classical vs. Keynesanalytical essayClassical vs. Keynes The Classical model of the economy says that all markets always clear. The labor market failing to clear does not exist in the Classical model because of competitive exchange equilibrium in which prices and quantities always adjust perfectly. The Classical model is of a closed economy and the variables are real output, employment, real and nominal wages, the price level, and the rate of interest. It is easier to understand the classical model using five diagrams that are numbered one through five in Appendix One, The Classical Model. These diagrams represent the separate parts of the model that together illustrate, for the most part, the entire Classical model.
In this essay, the author
- Explains that the classical model of the economy is of a closed economy and the variables are real output, employment, real and nominal wages, the price level, and rate of interest.
- Explains that the classical model makes real wages perfectly flexible and allows it to adjust to the level that clears the labor market.
- Explains the classical aggregate demand curve, ad, and the keynes model.
- Analyzes how keynes rejected pigou's explanation for unemployment, which is basically the classical models explanation.
1169 wordsRead More - Macroeconomics: Should Minimum Wage Be Raised?analytical essayMacroeconomics is the study of the behavior of an economy at the aggregate level. Macroeconomics considers the industrial sector, the services sector or the farm sector, but not specific parts of any of these sectors. The factor studies might include inflation, unemployment, and industrial production, often with the focus the effect of government policy on these factors.
In this essay, the author
- Explains macroeconomics is the study of the behavior of an economy at the aggregate level. it considers the industrial sector, the services sector or the farm sector but not specific parts of these sectors.
- Analyzes businessweek's article titled making the economic case for more than the minimum wage, written by peter coy.
- Opines that the minimum wage has been on political agendas and debated for a number of years. a poll in the washington post in december 2013 found that two-thirds of americans do in fact support an increase.
- Analyzes how the free market conservatives argue that it's wrong for government to interfere with work contracts. they believe that labor laws distort the market.
- Explains that the article points out that setting the price of labor above equilibrium level causes supply to exceed demand and will lead to more unemployment.
- Explains that the article talked about the card-krueger study, which showed that higher wages reduce turnover and increase job satisfaction. there is a cost to business with turnover.
- Opines that the article makes reference to 17 million workers being directly affected, and 11 million with indirect benefit, about probable raises to preserve pay ladders.
- Questions whether we believe in a minimum wage, or is it political gamesmanship? the subminimum is accepted for handicapped workers and restaurant workers.
- Opines that raising a minimum wage isn't good for raising and supporting families, since minimums are the base of life.
- Analyzes how the article addressed two approaches to lessen the influence of minimum wage. the good was to increase business and economic growth which would create a greater demand for workers.
809 wordsRead More - The Real Business Cycle Theoryanalytical essayThe dominating Keynesian paradigm seemed particularly successful in explaining the macroeconomic fluctuations before the mid-1970s while it became more apparent that later development in the real world revealed serious shortcomings of the earlier analysis which could not be seen as a proper interpretation for understanding the business cycles. According to Plosser (1989), the view that Keynesian economics was an empirical success even if it lacked sound theoretical foundations could no longer be taken seriously. The essential flaw in the Keynesian interpretation of macroeconomic phenomenon was the absence of a consistent foundation based on the choice-theoretic framework of microeconomics. With this emerging stagflation phenomenon in mind, the quiet different approaches to the explanation of business cycles fluctuations have been pursued. And the revival of business cycle theory is brought by the development of New Classical macroeconomics. Friedman (1968) and Lucas (1976) critically posed a challenge to the Keynesian model. Friedman argued that the long-run Phillips Curve should be vertical and the sustained inflation is compatible with any level of real demand of goods. Lucas...
In this essay, the author
- Introduces kydland and prescott's real business cycle theory, which focuses on explaining the economic fluctuations driven by exogenous technology shocks.
- Argues that keynesian economics was an empirical success even if it lacked sound theoretical foundations. the revival of business cycle theory is brought by the development of new classical macroeconomics
- Explains that the rbc theory has brought about a remarkable improvement in our understanding of the reasons and mechanisms of business cycles' formation.
- Analyzes the contribution of the rbc theory to the macroeconomic literature. it provides an exciting theoretical prototype for business cycles and attempts unifying a theory of economic growth.
- Explains that although the rbc theory has made significant progress since the 1980s, numerous sceptics appeared. the criticisms of this newly revived approach to the business cycle are illustrated.
- Argues that the rbcs assume that fluctuations in unemployment are completely voluntary and leisure was highly intertemporally substitutable. however, individuals do not respond to expected real wage changes by substantially reallocating leisure over time.
- Analyzes stadler's challenge to the representative agent framework. he argues that even the smallest amount of heterogeneity introduced into a rbc model can devastate the model.
- Analyzes how mankiw defends the role of money in explaining business cycles by providing an example of paul volcker's disinflation.
- Explains that the real business cycle theory has been controversial and there are many unresolved problems, but it changes the way macroeconomics modelled.
- Analyzes how rbc theorists found it hard to convince their opponents that economy is subject to large and sudden changes in technology. prescott offered some pieces of evidence on the importance of technological disturbances.
1495 wordsRead More - A Brief Biography of Robert Emerson Lucas Jr.explanatory essayNew Classical Economists believe that the economy is hit by unpredicted shocks. Shocks to aggregate demand are usually unpredicted changes in monetary policy or fiscal policy. Shocks to aggregate supply are usually changes in productivity. This results from changes to things such as technology, prices of capital goods, or organization of production. New Classical economists believe that firms would choose to produce more and pay their workers more if the economy has been hit by favorable shocks and less if the economy has been hit by unfavorable shocks. Also, workers would be willing to work more if productivity and wage rates are high and to take more leisure if their rewards are low.
In this essay, the author
- Explains that robert lucas was born in yakima, washington on september 15, 1937. he was the oldest child of his father, robert emerson lucas, and his mother, jane templeton lucas.
- Describes how lucas was a student at seattle public schools and graduated from roosevelt high school in 1955. he took several mathematics courses at the university of chicago, but his interests were in liberal arts.
- Describes how lucas obtained a woodrow wilson doctoral fellowship and entered the graduate program in history at the university of california and then moved on to berkeley, where he took courses in economic history and audited an economic theory course.
- Describes how lucas was offered a faculty position at the graduate school of industrial administration at carnegie institute of technology in 1963 by richard cyert, the new dean. lucas began theoretical work on business firms and their decisions to invest in physical capital and improve technology.
- Explains that lucas became actively involved in two collaborations, which influenced his thinking and ideas for years afterwards. one was a project with leonard rapping, who was lucas’s colleague and closest friend.
- Narrates how lucas met edward scott, who was a doctoral student at gsia, and he asked for his help on the dynamics of an imperfectly competitive industry. they reformulated john muth's rational expectations idea and lucas ended his job at carnegie mellon university.
- Narrates how robert lucas married rita cohen, an undergraduate student at chicago, in new york in 1959. they had a son, stephen, born in chicago in 1960, and joseph in pittsburgh in 1966.
- Explains that robert e. lucas influenced the way of thinking for many other important economists, such as finn kydland and edward prescott, and transformed macroeconomic analysis.
- Explains that lucas was one of the many leaders of economic growth. he helped clear up the barrier that had previously existed between economic development economics, which applied to poorer countries.
- Explains that lucas believed capital gains and income from capital gain should be taxed. he believed that eliminating capital income taxation would increase the united states capital stock by 35%.
- Describes new classical economics as a neoclassical school of thought in macroeconomics.
- Explains that new classical economists believe that the economy is hit by unpredicted shocks, such as changes in monetary policy or fiscal policy.
1245 wordsRead More