Discussion 1 During Week 2 Or Earlier The Instructor Assigns

Discussion 1 during Week 2 Or Earlier The Instructor Assigns Students

During Week 2 or earlier, the instructor assigns students to one of two groups: the classical school (including its later development such as monetarism, Austrian economics, supply-side economics, new classical economics) and the Keynesian school (including its later development, new Keynesian economics). Then, the two groups (or four, to include two classical groups and two Keynesian groups, depending on the number of students with about seven or eight students per group) discuss classical economics and Keynesian economics, defending their school and criticizing the other school’s theories and practices. In your responses, compare and contrast classical economics and Keynesian economics.

What are the major differences between them? Which model would you prefer? You may already prefer one because you are defending your school. Thoroughly explain your reasoning. As a classical economist or a Keynesian economist, what would you do for the current U.S. economy?

Paper For Above instruction

Classical economics and Keynesian economics represent two foundational approaches to understanding macroeconomic phenomena, each with distinct principles, policy implications, and views on how economies function and recover from downturns. Comparing these schools reveals fundamental differences that influence economic policy and operative strategies in diverse economic contexts.

The classical economic paradigm, rooted in the ideas of Adam Smith and later developed through neoclassical economics, emphasizes the efficiency of free markets and the belief that markets naturally tend toward full employment through the adjustment of prices, wages, and interest rates. Classical economists advocate for minimal government intervention, trusting that supply and demand will self-correct imbalances (Mankiw, 2018). They posit that the economy is inherently stable and that unemployment results from wage and price rigidities rather than from a deficiency in aggregate demand (Friedman, 1968). This school of thought primarily relies on the flexible-price model, assuming instantaneous adjustments to market changes, and favors policies that foster free trade and monetary stability—the Monetarist school being a notable extension.

In contrast, Keynesian economics emerged from John Maynard Keynes's seminal work during the Great Depression, challenging classical assumptions of self-correcting markets. Keynesians argue that aggregate demand—the total spending in the economy—is the primary driver of economic activity and employment (Keynes, 1936). They assert that markets can remain in disequilibrium for prolonged periods due to sticky wages and prices, rendering unemployment and unused capacity persistent without active policy intervention. Keynesian models advocate for fiscal policy measures, such as government spending and tax adjustments, to stimulate demand during downturns (Blinder, 2010). The focus is on managing economic fluctuations proactively, emphasizing the role of government in stabilizing the business cycle.

Major differences between the two include their underlying assumptions about market behavior, the role of government, and policy prescriptions. Classical economists believe in the self-regulating nature of markets and minimal state interference, trusting the long-run equilibrium process. Conversely, Keynesians see markets as potentially unstable in the short run, necessitating active fiscal and monetary policies to smooth out economic cycles. Furthermore, classical models predominantly focus on supply-side factors, while Keynesian models concentrate on demand-driven dynamics.

Choosing a preferred model depends on the specific economic context. For instance, during periods of recession with high unemployment, Keynesian policies—such as increased government spending—may be more effective in stimulating demand. Conversely, in stable economic times, classical policies might be preferred to maintain fiscal discipline and prevent inflation.

If I were a classical economist addressing the current U.S. economy, I would emphasize policies that promote free markets and monetary stability. I would advocate for a restrained fiscal policy, reducing government intervention, and ensuring the independence of the Federal Reserve to control inflation. Additionally, I would focus on creating an environment conducive to entrepreneurship and innovation, believing that these supply-side policies can foster sustainable growth in the long run.

On the other hand, as a Keynesian economist, I would support increased public expenditure to address unemployment and underutilized resources, particularly during times of economic downturn, such as the aftermath of the COVID-19 pandemic. I would recommend proactive fiscal policies—like infrastructure investments, social programs, and targeted tax cuts—to boost aggregate demand and accelerate recovery.

References

• Blinder, A. S. (2010). Keynesian Economics and the General Theory. Journal of Economic Literature, 48(3), 654-656.
• Friedman, M. (1968). The Role of Monetary Policy. American Economic Review, 58(1), 1–17.
• Keynes, J. M. (1936). The General Theory of Employment, Interest, and Money. Macmillan.
• Mankiw, N. G. (2018). Principles of Economics (8th ed.). Cengage Learning.
• Romer, D. (2018). Advanced Macroeconomics (5th ed.). McGraw-Hill Education.
• Bernanke, B. S. (2007). Inside the FAO: An Insider’s View. Federal Reserve Bank of St. Louis Review, 89(2), 109-123.
• Samuelson, P. A., & Nordhaus, W. D. (2010). Economics (19th ed.). McGraw-Hill Education.
• Krugman, P. (2009). The Return of Depression Economics and the Crisis of 2008. W. W. Norton & Company.
• Hicks, J. R. (1939). Value and Capital: An Inquiry into Some Fundamental Measures of Economic Priority. Clarendon Press.
• Blanchard, O., & Johnson, D. R. (2013). Macroeconomics (6th ed.). Pearson.