Final answer:
Keynesian economics, representing dynamic theory, differs from neoclassical economics in its focus on total spending and active government intervention during economic cycles, unlike the equilibrium theory's focus on market self-regulation and balance in supply and demand.
Step-by-step explanation:
The dynamic theory in economics, often associated with Keynesian economics, contrasts markedly with the equilibrium theory, typically related to neoclassical economics. The dynamic theory focuses on explaining the cycles of economc activity and how policy can moderate them. This is based on the Keynesian perspective that emphasizes total spending within the economy and often deals with fluctuating conditions such as shifting aggregate demand. On the other hand, the equilibrium theory centers on the conditions under which economic forces such as supply and demand are balanced, leading to a state of equilibrium.
Assumptions in Keynesian economics deviate from neoclassical by postulating that markets do not always clear (i.e., achieve equilibrium) quickly due to sticky prices and wages, and that active government intervention (such as fiscal policy) is often necessary to stabilize the economy. Neoclassical assumptions rest on the belief in the self-regulating nature of markets where prices and wages freely adjust to equilibrate supply and demand, negating the need for substantial government intervention.
Both these perspectives build upon the aggregate demand/aggregate supply model (AD/AS model), but they diverge in their assumptions on market behaviors and policy recommendations during economic cycles.