Question

1). Compare and contrast the Classical and Keynesian Theory of income, output and employment. (should be 20 marks)​

Answer 1

Answer:

Classical Theory believes that full-employment is the employment level the economy will return to, and tends to remain at in the long run. ... Keynesian Theory holds that unemployment is the normal state of the economy and significant government intervention is required if employment/output targets are to be reached.

Answer 2

Explanation:

This is the basic difference between Classical Theory and Keynesian Theory. (ii) "Demand creates its own supply" Unlike Classicals; Keynes believed that it is the demand that creates supply and not that supply creates demand. ... Thus increase in demand has led to increase in output, employment and income.