Writing assignment BUS 1104 UNIT 2 b1 PDF

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written assignment unit 4 for macroeconomy with well answered work. great work to review and revision purposes for you...

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Economics uses two models to bring out the concept of economic growth, one is the Classical model which was founded by David Ricardo and the other is the Keynesian model by John Maynard Keynes. These two models describe how the economy works in the short and long run respectively. Similarities between Keynesian and Classical economics. ● Both models accept government spending. One might say that Classical economics is against government spending but it says that in absence of personal spending, the government ought to spend on the public sector for the sector to thrive. This argument is similar to the one of Keynes which emphasizes that government spending is conducive for improving and creating employment within a country which increases output. ● Money demand. Both models pay attention to money supply and demand to influence the rate of interest. The classical model pays attention to borrowing, then Keynes brings out the role of funds supply that can not be ignored Differences ● Classical does not consider money as a means to facilitate transactions of goods that do not affect income, output, and employment while Keynes considers the use of money vital as it influences output, income, and employment. ● Classical believed that the government had no intervention in the market “ Laizzez Faire” to make decisions while Keynes considers the heavy involvement of the government in decision making. How does each handle unemployment? According to Keynes, changes in aggregate demand have an impact on real output, employment,

and not prices in the short run, in other words, the monetary policy can greatly affect output and employment if prices are interchanged. The classical looks at the policies imposed which led to wage reduction or unemployment. Developments that have changed the 1980s macroeconomic thought. Aftermath the recession that ended in 1982, economists termed what we call a business cycle which consisted of an expansion and a recession. This helped to improve on performance as Fed launched a contractionary policy which was to reduce inflation....