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Macroeconomics: Classical or Keynesian

In: Business and Management

Submitted By jackcharlie
Words 269
Pages 2
Which is better: Classical or Keynesian? And which one most embraces the idea of liberty?
Classical framework does embrace the idea of liberty and freedom more. The classical framework is based on laissez faire principles, which opposes any government regulation of the economy. However, Team B believes that the Keynesian theory is better for the economy overall. Limited government involvement can influence the economy positively. For example, government involvement can help improve the economy in a recession. In a recession, spending benefits the economy. If the government spends or influences individuals to spend, it can help improve the economy and limit the negative effects of the recession. The government can help the economy reach its potential income as well. The potential income of an economy is the level of income that an economy is potentially able to produce without increasing inflation (Colander, 2010). Economies might not be able to reach their potential income without any government interference. Using recessions as an example the forces of the market may not be powerful enough to restore the economy. The economy would suffer from a changing equilibrium income. The equilibrium income is defined as the income level the economy moves towards because of the cycles of declining or increasing production (Colander, 2010). These fluctuations from the recession would alter the equilibrium income negatively and pull the economy further away from reaching its potential income. Without government assistance, the economy could become stuck in a recession. The Keynesian framework allows for this government assistance and can assist in stabilizing the economy as a whole.

Reference:
Colander, D.C. (2010). Macroeconomics (8th

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