Difference between keynesian and new classical macro economics of incom and employmet
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Macroeconomists on either side would probably lay into me for how heavily I'm about to over-simplify this. The other answers seem to be focusing on the implications of the perspectives, rather than the perspectives themselves, which is misleading.
Keynesian models assume frictions in markets. Prices don't adjust quickly to shifts in demand or supply, so any shock the market will show up in relatively large shifts in quantities. Prices are relatively inflexible, quantities are relatively flexible.
Neoclassical models assume much the opposite. Markets have few frictions, and prices adjust quickly and simply, meaning quantities don't change when there's a shock to supply or demand. Prices are flexible, quantities aren't.
In these simple terms, shifts in quantities are a "real" change (employment, output, etc. Things we care about) and shifts in prices are nominal (they don't change these things we care about). A shock in Keynesian model will have some effect on the economy other than changing prices. In a Neoclassical model, not so much.
Because of this, you get rather different behavior in the two styles of models. Neoclassical models tend to work better for long-run phenomena (when prices have time to adjust), and Keynesian models tend to work better for short-run phenomena (when they don't). Neoclassical models work better when we're near full employment and the economy is good. Keynesian models work better when this isn't the case. The models are much broader than the standard answer of "Keynesian says markets don't clear so we need fiscal policy, Neoclassical says they do and we don't" that shows up often in conversations.
Neither is as obvious/unrealistic as it's online supporters/detractors would have you believe.
Keynesian models assume frictions in markets. Prices don't adjust quickly to shifts in demand or supply, so any shock the market will show up in relatively large shifts in quantities. Prices are relatively inflexible, quantities are relatively flexible.
Neoclassical models assume much the opposite. Markets have few frictions, and prices adjust quickly and simply, meaning quantities don't change when there's a shock to supply or demand. Prices are flexible, quantities aren't.
In these simple terms, shifts in quantities are a "real" change (employment, output, etc. Things we care about) and shifts in prices are nominal (they don't change these things we care about). A shock in Keynesian model will have some effect on the economy other than changing prices. In a Neoclassical model, not so much.
Because of this, you get rather different behavior in the two styles of models. Neoclassical models tend to work better for long-run phenomena (when prices have time to adjust), and Keynesian models tend to work better for short-run phenomena (when they don't). Neoclassical models work better when we're near full employment and the economy is good. Keynesian models work better when this isn't the case. The models are much broader than the standard answer of "Keynesian says markets don't clear so we need fiscal policy, Neoclassical says they do and we don't" that shows up often in conversations.
Neither is as obvious/unrealistic as it's online supporters/detractors would have you believe.
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