Keynesian vs. Classical

514 Words3 Pages
In our current economic climate, the Keynesian model of economics is more accurate. Business owners operate their business outside of government control and without much thought to the economic situation. Their goal is to build revenue and raise net worth of their company. With this being said, prices are in fact “sticky”. Even though the prices will lower of time, companies will take advantage of the recession, knowing that consumers still require their goods, no matter if it falls outside their budget or not. It is the government and consumer’s responsibility to overcome the “stickiness” of the prices via certain stimulations. Essentially the government will directly, or indirectly, create opportunities for work for its unemployed citizens, therefore increasing consumer incomes to a point where they will match a compromise price level. This, in turn, will cause the demand for goods to go up which will decrease the price temporarily. The economy is not run by a single entity, which means that it is the individual or individuals that are driving our economy. The difference in motives and operation styles from company to company will mean that there are flaws within the economy. In a time of recession and high unemployment this has to be complemented in another way to counteract the recession and promote economic growth. The classical model is an accurate indication of the economy if businesses were operating as one entity, or under government control, which is not the case in our society. Supply does not match demand because the goal of the production entity is revenue and the goal of the consumer is spending. This means that the market cannot operate on a smooth and perfect level, due to the difference in goals. The classical model states that government involvement is harmful to the economy. Whether it is harmful or not should not be a question here because it
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