Answer to Question #178965 in Macroeconomics for Brandon Gadsden

Question

What is the difference between the classical model and the Keynesian?

Answer 1

The Classical Model describes the long run the economy - where resources are fully employed and everyone is working. The Keynesian Model describes what happens during expansions and recessions, in the short run, when the economy is above or below its potential. Also Classical theory is the basis for Monetarism, which focuses on managing the money supply, through monetary policy. Keynesian economics on the other hand, suggests governments need to use fiscal policy, especially in a recession.