Compare and contrast the classical and Keynesian schools of thought for the following economic issues.(a)The flexibility of wages and prices.(b)The importance of macroeconomic policies.

What will be an ideal response?

(a)The flexibility of wages and prices is a principal point of disagreement between classical 
economists and Keynesians. Classical economists believe that wages and prices are quite flexible; in response to a change in market conditions, wages and prices adjust quickly to their new market-clearing levels. Keynesians believe that wages and prices are rigid or sticky; in response to changes in the economy, wages and prices adjust slowly to their new market-clearing levels.
(b)Classicals and Keynesians also disagree about the use of macroeconomic policies. Given 
wage-price flexibility, classical economists believe that the market economy normally provides for full employment. They believe that government intervention in the form of macroeconomic fiscal and monetary policies is not needed to prevent recessions. Given slow adjustments in wages and prices, Keynesians believe that recessions could plague the economy for several years. They believe that efficient use of macroeconomic policies could return the economy to equilibrium more quickly.

Economics

You might also like to view...

What is the mission of the World Bank?

What will be an ideal response?

View
Economics

According to the monetarists, the velocity of money is

a. constant by definition. b. highly variable and unpredictable. c. constant as a matter of empirical proof. d. not constant but predictable.

View
Economics

What is a repeated game? How does this helps the players in a game?

What will be an ideal response?

View
Economics

Explain the cases for and against flexible and fixed exchange rate regimes

What will be an ideal response?

View
Economics