Macroeconomic Theories Of Macroeconomics And Classical Economics

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Macroeconomics is a branch of economics dealing with the performance, structure, behavior, and decision-making of an economy as a whole, rather than individual markets. This includes national, regional, and global economies. With microeconomics, macroeconomics is one of the two most general fields in economics. There are two major macroeconomic theories that economists use to describe the economy. Those theories are Keynesian and Classical. Each theory has a different approach to the economic study of monetary policies, consumer behaviors, and government spending. A few distinctions separate the two theories. Classical economics is the theory that free markets will restore full employment without government intervention. They believe…show more content…
That means that there is no need for fiscal policy designed for the purpose of restoring full employment. A key assumption in the classical theory is that, with time to adjust, prices and wages will decrease to ensure the economy operates at the full employment level. Classical economists focus more on creating long term solutions for economic problems. Inflation, government regulations and taxes can all play an important part in developing the classical theories. Classical economists also analyze how current and new policies will impact the market environment. Keynesian economics is the view that in the short run, especially during recessions, economic output is strongly influenced by aggregate demand. The theories forming the basis of Keynesian economics were first presented by the British economist John Maynard Keynes. In the Keynesian view, aggregate demand does not necessarily equal the productive capacity of the economy; instead, it is influenced by a host of factors and sometimes behaves erratically, affecting production, employment, and inflation. Keynesian economics is the theory that the role of the federal government is to increase or decrease aggregate demand to achieve economic goals. Keynesian economics relies on the government to intervene and spend to help with economic growth during the economic downturns. Keynesians believe that the economy is made up of consumer spending, business
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