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What is the key side (supply or demand) of the economy for Keynesian economists? What assumption about prices leads them to this emphasis? What is the key side (supply or demand) of the economy for classical economists? What assumption about prices leads them to this emphasis?

User Ihor Rybak
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Final answer:

Keynesian economists emphasize demand due to price stickiness, leading to their focus on government intervention in the short run. Classical economists focus on supply and price flexibility, adhering to Say's Law, which suggests the market self-corrects in the long run.

Step-by-step explanation:

Keynesian versus Classical Economists on Demand and Supply

For Keynesian economists, the key side of the economy is demand. Their emphasis on demand stems from the assumption that prices are sticky in the short run, meaning they do not adjust quickly to changes in the economy. This stickiness can result in insufficient demand, leading to unemployment and unused capacity. Keynesians believe that in such scenarios, government intervention can help boost demand and pull the economy out of recession.

In contrast, classical economists believe that the supply side of the economy is key. They adhere to Say's Law, which posits that supply creates its own demand over the long run. This assumption relies on the belief that prices are flexible and can adjust to balance supply and demand, ensuring that all goods produced can eventually be sold. According to this view, the market will naturally correct itself over time without the need for governmental intervention.

Therefore, Keynesian economists focus on the short-term fluctuations in aggregate demand, while classical economists concentrate on the long-term perspective where aggregate supply determines economic outcomes. The different assumptions about price flexibility underpin these divergent views on the relative importance of demand versus supply in the macroeconomy.

User Akiner Alkan
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