Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364



Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364
Textbook Problem

Summarize the Keynesian and Neoclassical models.

To determine

The Keynesian and Neoclassical models.


The comparison between Keynesian and Neoclassical models can be compared to the challenge of riding two horses simultaneously. As if a circus performer stands on two horses, with one foot on each of the horses, the excitement for the viewer lies in contemplating the gap between the two. Similarly, the two horses here are the short-term Keynesian perspective and the long-term neoclassical perspective. Such balancing may look uncomfortable, but there is no way to avoid it. As both models have their strengths and weaknesses.

Keynesian model is a short-term, which is built on the paying emphasis on aggregate demand as a factor of business cycles and magnitude of salary and price inflexibility. Also, it does a good job in explaining many recessions and reasons for unemployment cycles which determines rises and falls. After focusing on the short-run aggregate demand adjustments, Keynesian economics risks overlooking the long-term causes of economic growth or may be unemployment’s default rate that exists even after the production of the economy at potential GDP level...

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