Comparative Analysis

Keynesian economics, named after economist John Maynard Keynes, and

classical economics hold different views on various economic aspects:

1) Government Intervention

Keynesian: The market can not self-regulate, that is, there are no equilibrium issues,
government intervention in the economy is necessary.

Classical: Does not allow for state intervention in the economy. The invisible hand
tends to balance the market , there is no need for government intervention in the
economy.

2) Employment and Output

Keynesian: The economy operates below full employment. Meaning the economy
always operates with crises, there is always underproduction, and the government needs
to combat these depressive cycles.

Classical: The economy tends to operate at full employment. Classical believes that
markets naturally achieve full employment in the long run.

3) Market Equilibrium

Keynesian: Keynesian: Suggests that markets may not naturally reach equilibrium and
can remain in periods of prolonged recession without intervention.

Classical: Argues that markets tend to move towards equilibrium naturally, and any
deviations are short-lived as prices and wages adjust.

4 ) Theory of Employment and Aggregate Demand:

Keynesian: Focuses on aggregate demand as the primary driver of economic activity.

Advocates for government intervention, especially during economic downturns, to
stimulate demand and reduce unemployment through increased public spending or
tax cuts.

Classical: Believes in Say's Law, suggesting that "supply creates its own demand.
Emphasizes the importance of supply-side policies to enhance productivity and
potential output.
For example: If a bakery produces bread, the wages paid to the bakers and other
employees during the production of the bread create the income necessary to buy the
same bread. Therefore, the supply of bread creates its own demand.