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Similarities between classical and Keynesian school of thought
Classical and Keynesian economics
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The Classical Dichotomy
What is the Classical dichotomy? Under what circumstances of
disequilibrium did the Classical economist accept that the dichotomy
does not hold?
Selfishness is a reprehensible human characteristic; yet it is
precisely the necessary behavior yielding the greatest possible
economic benefit for the entire society according to Classical
economics. The dominant economic theory from the 18th to 20th century
was of a free market system of continuous competitive exchange
equilibrium in which prices and output regulate themselves perfectly
until markets achieve the market-clearing price. The Classical system
takes place in a closed economy which spontaneously moves toward
full-employment equilibrium. The principle fueling such a system is
that money wages are flexible, and the employment equilibrium is not
affected by the “nominal” amount of money in this dichotomous system.
However, there are limitations to the Classical model; mainly that it
does not work in the short-run because it fails to account for market
dynamism. The theory assumes automatic adjustment of markets from one
equilibrium to the next and ignores periods of change, or
disequilibrium. Although a static model like the Classic has its
downfalls, it is in important indicator of market forces, and is once
again gaining popularity as a “Neo-classical” model after its long
refutation by Keynesian economists.
Classical economics held that the two types of economic variables,
nominal and real, exist independently, resulting in this dichotomy of
the Classical model. Classical economist Pigou compared this
characteristic of nominal capital to...
... middle of paper ...
... to look
at the most opposing view, or Keynesian economics. While the
Classical model stresses that markets will always perfectly clear and
government should do nothing more than safeguard the functioning of
these market processes Keynes argues that markets need to helped with
a combination of monetary and fiscal policies. The question remains,
how effective is government spending in curbing periods of
disequilibrium in the economy?
References
Monetary Neutrality, “Economics A-Z.” Retrieved from The Economist
database on 13/01/2008 at
Mundell, R. “International Economics.” New York: Macmillan, 1968.
Shaw, G., McCrostie, J. & Greenway, D. “Macroeconomics: Theory and
Policy in the UK.” 3rd ed. Oxford: Blackwell, 1997.
Hillier, B. “The Macroeconomic Debate.” Oxford: Blackwell, 1991.
In "Still Separate, Still Unequal: America's Educational Apartheid," Jonathan Kozol addresses the deafening issues that urban public schools in America remain segregated, underserved, and their respective state unrecognized. Kozol was apprised of the tragedy via the study of unconscionable statistics on the actuality of non-diverse schools. He determined that an inordinate number of elementary schools continue to be segregated by race; regardless of the complexion of the area in which they reside. Numerous studies identify that many blacks are still living in poverty or in lower income neighborhoods. Consequently, the location of schools has a profound effect on the quality of the student’s education. Funding is directly affected by the affluency
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Very few people truly believe in every aspect of Neoclassicalism. This is due to its belief on the assumption that supply and demand are equal and that the markets are always clear. Neoclassicalism is heavily devoted to mathematical models to describe the economy and the interaction between individuals within. These models tend to stray away from reality; in a way they show that neoclassical theories aren’t necessarily realistic, but they still help find the answers economists need. George E. P. Box said “Essentially, all models are wrong, but some are useful.” This is proven by Neoclassical
The clash between Hayek and Keynes has defined modern economics. On one hand we have Keynes standpoint, which was if investment exceeded savings, there would be inflation, but if savings exceeded inflation, a recession would be present. On the other hand Hayek presented ideas of less government initiative and to have people make their choices on economic decisions more freely. Hayek argument on Keynes government spending was that if the economy should be more concerned with consuming or investing.
As humans, would like to think we are rational in our decisions, especially for major decisions that will affect our lives or the lives of others in the long run. Nonetheless all decisions form from the foundations of our attitudes where they can stem from internal or external factors.
In regards to chapter 10, the topic that I found particular interesting was the “differences-similarities dialectic”. The reason being on how it describes how humans interact with one another and the differences that attract the person to its peer. Similarity principal; a rational attraction suggesting individuals tend to be attracted to people they perceive to be similar to themselves (Martin & Nakayama, 398). I find it interesting that it’s the truth with this topic because everyone does it and they don’t know it because its second nature to them. An example would be a girl looking for a boyfriend and looking for something serious. If the father of the girl was around and she sees him as an example to follow she will look for a guy that
Neo-classical economics assumes that workers and employers are perfectly rational and that labor markets function efficient...
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The battle between what is right and wrong is a classic struggle that has existed from the beginning of time. The most honorable people face the crossroad of choosing either the angel’s path or the devil’s; one path leads to an honest yet difficult life while the other is an easy and selfish one. Throughout history, women have been portrayed as the reason of Man’s downfall. The male dominated world has created stereotypes to blame females for their defeats due to ignorance. Leo Tolstoy’s “The Devil” explores the dichotomy of the objectification of women as the angel and the devil.
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McEachern, W. A. (2012). Macroeconomics: A contemporary introduction (10th ed.). Mason, OH: South-Western Cengage Learning.
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