Comparison between Classical and Keynesian theory | classical and Keynesian theory of income and employment

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Hi Friends, in today’s article we are going to know about the Comparison between Classical and Keynesian theory of income and employment. So let’s discuss in details.

Comparison between Classical and Keynesian theory

The difference between classical and Keynesian theory of income and employment are discussed below-

• Full employment Equilibrium – The classical economist belief that there is always full employment in the economy. On the other hand, Keynes point out that full employment equilibrium is only an exceptional situation, i.e. there is always under employment.

• Validity of Say’s Law – Classical economist argued that supply creates its own demand. But Keynesian theory rejected the idea that supply creates its own demand. Keynes point out that demand creates its supply.

• State Intervention – The classical theory was in favour of laissez faire policy while Keynesian theory support the government intervention.

• Function of Money – In the classical theory, money is regarded only as medium of exchange, whereas Keynes held that the more significant function of money is that it is a store of value.

• Saving, investment equality – The classical writers assumed that saving and investment remain always equal. Keynes, however maintained that saving and investment are not always equal. They are equal only in equilibrium.

• Wage cut and employment – The classical economists suggested that full employment can be achieved through a cuts upon money wages. Keynes, on the opposite pointed out that a cut upon wages would result in a fall in aggregate demand. That causes still greater unemployment in the economy.

• Long run theory – The classical theory was based on the assumption of long run. On the other hand, Keynes theory of employment is a short run theory.

• Static Theory – The classical theory is static theory while the Keynes theory is a dynamic theory.

Conclusion

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