Assignment: Response to the following discussion (minimum 1 paragraph each). Please cite all work.
A classical economist theory is rooted in the concept of a laissez-faire economic market. Laissez-Faire, also known as “free market” and requires little to no government intervention. Also, it allows individuals to act per their self-interests regarding the economic decision made. They also use values theories that determine prices in the economic market. On the other hand, A Keynesian economist relies on the spending and aggregated demand to define the economy. They believe that aggregated demand often influences the public and private decisions (Woodruff, 2018).
The point of view on government spending is different in both economists. The Keynesian believe the government spending can jumpstart economic growth during sluggish economic downturns. On the other hand, the classical economist believes that consumer spending and business investments represent the more critical parts of economic growth (Woodruff, 2018).
In my opinion, and the knowledge I’ve acquired doing my research paper on government bailouts, I have to side with the Keynesian economist. Back in the last big recession, when General Motors and Chrysler were declaring bankruptcy, the government bailed those companies out enabling the creation of jobs that at the same time stimulated the economy (Amadeo, 2018).
Amadeo, K. (2018, November 27). Was the Big 3 Auto Bailout Worth It? Retrieved February 11, 2019, from https://www.thebalance.com/auto-industry-bailout-g…
Woodruff, J. (2018, June 30). Differences Between Classical & Keynesian Economics. Retrieved February 11, 2019, from https://smallbusiness.chron.com/differences-betwee…
I believe that I am a Keynesian economist. I do not believe the economy to be self-regulating which has been proven during the 2008 recession, the government had to jump in to help by offering bailouts. At this time the economy was in a recessionary gap, and the only way to get the economy back to its normal real GDP was to increase government spending, which took place in the form of bailouts. Say’s Law ignored many of the variables that can affect the economy, such as stating, “Through changes in the interest rate, the amount of saving will always equal the amount invested” (Arnold, 2019). Keynes’s criticism considered there are many different factors affecting interest rate, saving, and investments, that would mean that the amount of saving would not always equal the amount invested. Say’s law also says that wages are flexible and for an economy to move back to its real GDP a decrease in wages can take place, while, “Keynesians argue that in the real world, wages are often inflexible. In particular, wages are ‘sticky downwards’. Workers resist nominal wage cuts” (EconomicsHelp, n.d.). Keynes took into account many other factors that Say’s law did not. I believe that Keynes perspective to be much more realistic.
Arnold, R. A. (2019). Economics (12th ed.). Australia: Cengage.
Keynesian vs Classical models and policies. (n.d.). Retrieved February 12, 2019, from https://www.economicshelp.org/keynesian-vs-classic…