Final answer:
Classical economists emphasize self-correction, long-run growth, and potential GDP's importance, favoring minimal government intervention. Keynesian economists focus on aggregate demand as the driver of business cycles, advocating for active government policies to mitigate recessions and manage the economy effectively.
Step-by-step explanation:
Key Differences Between Classical and Keynesian Economists' Views on Business Cycles
Classical economists, also referred to as neoclassical economists, typically hold the view that economies are self-correcting systems that naturally fluctuate around the potential GDP and the natural rate of unemployment in the long run. They emphasize that potential GDP determines the economy’s size and assert that wages and prices will adjust flexibly to ensure that the economy returns to its potential output level. The policy implication of this perspective is that governments should focus on long-term growth and controlling inflation rather than on short-term fluctuations such as recessions or cyclical unemployment.
In contrast, Keynesian economists argue that changes in aggregate demand primarily cause business cycle fluctuations. Therefore, they suggest that policymakers should be actively involved in managing the economy, especially in reversing recessionary or inflationary periods. Keynesians are skeptical of the market's ability to self-correct in the short run and reach full employment without government intervention.
The neoclassical economics focuses on long-run growth, and Keynesian economics is deemed more useful for short-run macroeconomic analysis. Both schools of thought offer distinct perspectives on how to handle business cycles and the role of government in economic management.