Neo-Classical Economists vs Keynesian Economists

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Macroeconomics is the study of economics from an overall point of view. Instead of looking so much at individual people and businesses and their economic decisions, macroeconomics deals with the overall pattern of the economy. To star with, we will look at two main groups of economists: the neo Classical Economists and the Keynesian Economists. Classical economists generally think that the market, on its own, will be able to adjust while Keynesian economists believe that the government must step in to solve problems. A neoclassical economy is an approach that economics use that relates supply and demand to an individual's rationality and his or her ability to maximize utility or profit. Neoclassical economists argue that firms buy or rent the factor of production which they operate at the highest possible level of efficiency in order to maximize profits. However, firms have no control over the costs of these factors or of the price at which their finished goods are sold. Neoclassical economists also argue that consumers maximize utility when the ratio of marginal utility to the purchase price is the same for all the goods and services consumed. To conclude, if the marginal utility per expenditure is lower for one good than for another, it will not be bought. The whole process is governed by the forces of demand and supply. On the other hand, Keynesian economics is a theory of total spending in the economy also called the aggregate demand and its effects on output and inflation. Keynesian economics can also be define as an economic theory stating that active government intervention in the marketplace and monetary policy is the best method of ensuring economic growth and stability. According to Keynesian theory, changes in aggregate demand have their greatest short-run effect on real output and employment and not on prices. Keynesian believe that what is true about the short run cannot necessarily be inferred from what must happen in the long run, and we live in...
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