(e.g. a government) might take corrective action when the private economy demonstrates the need for assistance. Keynesian economics operates on the basis that the economy's fluctuation requires intervention to meet equilibrium.
Keynesian economics was credited for the resolution of the American Great
Depression of the 1930s. In this case, the federal government interfered in the economy through several initiatives. Ultimately, this is interventionist thinking. Because of the apparent success (end of the Great Depression), Keynesian economics became a more legitimate theory. Along with …show more content…
The economic theory is named after John Maynard Keynes. Keynes formulated
Keynesian economics in the 1930s to process the Great Depression. Advocates of
Keynesian economics increased government spending to keep the economy flowing as individuals were contributing less money. The government essentially operated as a substitute for private capital. Without this intervention, the unemployment rate would have increased. The cycle becomes cyclical as these unemployed people will then contribute less to the system. In this sense, Keynesian economics can serve as an …show more content…
Classical economics is rather laissez-faire. In simple terms, the theory expects the economy to fluctuate, and believes that it will automatically self-correct. The economy will keep going up and down, frequently passing through equilibrium. At its core, Classical economics is free-market thinking. Classical economists recognize that certain people and entities will suffer. However, these economists believe that interfering will have negative long-term effects on the economy.
That being said, classical economists believe that the fluctuations in employment and economic output will always self-correct before they become too drastic. The Great
Depression stands out as a possible exception to this trend, and it instigated a reexamination into the theory (investopedia.com/c).
Later Developments
Both economic theories have evolved into new theories. Post-Keynesian economics created a greater distinction from its predecessor between macro and micro economics. It tends to focus more on short-term economic growth and the real world impact of fluctuations in the economy (ecotheories.org).
In an attempt to account for the events of the 1930s, Neoclassical