The Debate Between Keynesian And Classical Economists On...

Critically examine the debate between Keynesian and classical economists on the efficiency of the market mechanism and the efficiency of government policy intervention. What lessons can be drawn from the 2007-2009 global financial and economic crisis The classical school is one of the economic thoughts; the key assumption of this school is that the market system is the most efficient system in the sense that the unencumbered market mechanism ensures the optimal allocation and utilisation of scarce resources. They also believed that â€Å"Supply creates its own demand.† (Taylor, 1984)In other words, in the process of producing output, businesses would also create enough income to ensure that all of the output will be sold. Another assumption is that the market system automatically restores economic equilibrium from any temporary shock, meaning government intervention is unnecessary. The second school of thought is the Keynesian school; the key assumptions of this school are that the market system is instinctively unstable in the sense that it falls to maintain economic equilibrium from time to time. Once disequilibrium occurs the market mechanism may not be able to restore equilibrium automatically, which could progressivel y lead to market failure or economic paralysis. Therefore the market mechanism may not be efficient and government intervention is most likely to occur in situations of market failure, for example the great depression or the 2007 and 2009 global crisis. (yinShow MoreRelatedMacro Economics11524 Words   |  47 PagesUnit-1 Q1. Define micro and macro economics, Distinguish between them, and explain the scope, importance and its limitations Ans. modern economy analysis has been divided into two major branches that is micro and macro economics. Micro economics means the economics system which deals individual economics unit on the other hand macro economics means the economics unit which deals aggregate as a whole that is national income, general employment, and total out –put, general price level etc. These twoRead MoreInflation Cause, Effects and Remedies11320 Words   |  46 Pagesprices received by domestic producers for their output. This differs from the CPI in that price subsidization, profits, and taxes may cause the amount received by the producer to differ from what the consumer paid. There is also typically a delay between an increase in the PPI and any eventual increase in the CPI. Producer price index measures the pressure being put on producers by the costs of their raw materials. This could be passed on to consumers, or it could be absorbed by profits, or offsetRead MoreInflation Cause, Effects and Remedies11309 Words   |  46 Pagesprices received by domestic producers for their output. This differs from the CPI in that price subsidization, profits, and taxes may cause the amount received by the producer to differ from what the consumer paid. There is also typically a delay between an increase in the PPI and any eventual increase in the CPI. Producer price index measures the pressure being put on producers by the costs of their raw materials. This could be passed on to consumers, or it could be absorbed by profits, or offsetRead MoreThe Theory Of Economic Growth6096 Words   |  25 Pagesdilute its complicated nature. The following frame work will consist of highlighting the bulk of important works of the age, stretching from Adam Smith to advanced adaptations of endogenous and exogenous growth theories. 2.1.1 The Classical Views on growth These classical views centre on the most prominent economic thinkers of the industrial age. These great thinkers include that of Adam Smith, Thomas Malthus, David Ricardo, John Stuart Mill and Karl Marx. 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Box 5000 Annandale-on-Hudson, NY 12504-5000 http://www.levy.org Copyright  © The Levy Economics Institute 2007 All rights reserved. ABSTRACT Financialization is a process whereby financial markets, financial institutions, and financial elites gain greater influence over economic policy and economic outcomes. Financialization transforms the functioning of economic systems at both the macro and micro levels. 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This section will try to identify key issues facing the securities exchange, and possible solutions that the exchange can take to cement its place as efficient and reliable worldwide market. 2. The Impact of Globalisation on South Africa Before discussing the impact that globalisation has had on SouthRead MoreUnit 1 Economic Environment of Business14187 Words   |  57 Pages you should be able to : †¢ Define what you mean by â€Å"environment† †¢ Classify the complex environmental variable on the basis of objective criteria †¢ Identify the critical elements of economic environment of business †¢ Analyse the interactions between economic and non-economic environment †¢ Explain the impact of economic environment on business management; and †¢ Illustrate your understanding of economic environment with reference to the Indian business situation. Structure 1.1 Introduction