Overview – The New Classical school is the modern adaptation of the classical school (see above). New Classical Economics. The Keynesian View: Monetary Equilibrium: The Keynesian theory assigns a key role to money. Excessive saving, saving beyond investment, is a serious problem that encouraged recession and even depression. Should the government influence the economy or stay away from it? Classical Vs Keynesian Economics 1235 Words | 5 Pages. In the Keynesian macroeconomic model aggregate demand is equal to the sum of consumption and income. The Classical economic theory was developed by Adam Smith while Keynesian theory was developed by John Maynard Keynes. Keynesian economists believed that aggregate demand for goods and services not meeting the supply was one of the most serious economic problems. In the keynesian model, aggregate supply curve is horizontal at some price level. It contends that a change in the money supply can permanently change such real variables as the interest rate, the levels of employment, output and income. Keynesian horizontal quizlet: Expectations augmented classical vs. keynesian: fluctuations around long run immediate short run: Demand tutor2u rightward shift: Shifts demand demand downward: Expenditures given extreme keynesian: long run determined keynesian range short run: Classical vs. keynesian keynesian range short run Classical and Keynesian economics are both accepted schools of thought in economics, but each had a different approach to defining economics. Classical economics emerged from the foundations laid by Adam Smith in his book An Inquiry into the Nature and Causes of the Wealth of Nations, published in 1776. Classical economists had looked at the equilibrium of supply and demand for individuals, but Keynesians focuses on the economy as a whole. Wage-Cut Policy as a Cure for Unemployed Resources 5. ADVERTISEMENTS: The following points highlight the six main points of differences between Classical and Keynes Theory. Assumption of Neutral Money 6. Correct! Classical Economics Vs. Keynesian Economics: The Key Differences. Interest […] Keynes suggested three motives which led to the demand for money in an economy: (1) the transactions demand, (2) the precautionary demand, and (3) the speculative demand. If demand changes, the effect will be entirely on output. Keynesian economics is a form of demand side economics that inspires government action to increase or decrease demand and output. True Correct! Assumption of Full Employment 2. It is based on Walrasian assumptions, rational expectations and arose out of the failures of the Old Keynesian schools during the … Policy of ‘Laissez Faire’ 4. False Question 30 2.94 / 2.94 pts If intended business investment declines by $100 the Keynesian multiplier effect implies that total income will decrease by more than $100. 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