Classical economists believe that the economy is self-correcting, which means that when a recession occurs, it needs no help from anyone. Keynesian economists believe savings are a drain on economic activity, in that savings depresses demand. • Say’s Law: ‘Supply creates its own demand’. To them full employment was a normal situation and any deviation from this was regarded as something abnormal. Classical economic theory is the belief that a self regulating economy is the most efficient and effective because as needs arise people will adjust to serving each other’s requirements. The ideas of this school reached their highest level of development in the works of Ricardo. Classical economists believe that there is nothing the government can do to help the economy that is better than the market's solutions. The classical economists believed that there is always a condition of full employment of resources in an economy. Unfortunately, in reality, it has been observed that these prices are not as readily flexible downwards as they are upwards, due a variety of market imperfections, like laws, unions, etc. In other words, if a good is produced, it has to be bought. We also use third-party cookies that help us analyze and understand how you use this website. The Keynesian theorists on the other hand, believe that Government intervention in the form of monetary and fiscal policies is an absolute must to keep the economy running smoothly. “Civil government, so far it is instituted for the security of property, is in reality instituted for the defense of the rich against the poor, or of those who have some property against those who have none at all.” – Adam Smith from ‘The Wealth of Nations’, 1776. a. These cookies do not store any personal information. He thus adjusts his wage rates downwards, acting in the overall welfare of society, without knowing it. b. See the answer. They recognize that business cycles are inevitable but believe they are self-correcting and advocate … If... What Is Economic Growth and Development? c. Country Y's economy will grow faster than country X's. Its main tools are government spending on infrastructure, unemployment benefits, and education. Question: QUESTION 47 Most Economists Believe That The Classical Dichotomy Holds In The Long-run And The Short-run In The Long-run But Not The Short-run In The Short-run But Not The Long-run Not In The Long-run And Not In The Short-run. • Classical economists believe that the best monetary policy during a crisis is no monetary policy. Keynes argued that interest rates do not usually fall or rise perfectly in proportion to the demand and supply of loanable funds. This means that the economy is not always at full employment in the short run. All rights reserved. In the long run we are all dead.” – John Keynes’s famous quote to stop the Classical economists from rapping about the ‘long run’.
2020 classical economists believe that