Classical vs. Keynesian

CLASSICAL

• Followers
• Adam Smith
• J.B. Say
• David Ricardo
• Alfred Marshall
• Say's Law
• Supply creates own demand
• Production= Income= Spending
• Under spending unlikely
• Whatever output produced will be demanded
• Savings and Investment

• Savings= Investment Income
• Savings (Leakage)= Investment (Injection)
• Loan able Funds Market
• Wages/ Price Flexibility
• Downward
• Supply Curve
• Vertical
• Output and Employment
• Determined by AS
• Unemployment
• Rarely exists because of wage/price flexibility
• Cause: External (War)
• Aggregate Demand
• Determines PL
• Stable if Money Supply is Stable
• Basic Equation
• MV= PQ
• 1965-1972
• Role of Government
• Monetary Policy maintains steady Money Supply
• Laissez-faire is best
• Self Regulating Economy
• Inflation
• When the economy has too much money flowing around

Short Run last a Short Time

Microeconomics= Emphasis Today

• Other
• Competition is Good
• Invisible Hand
• Long Run- Balance= FE
• Trickle Down Effect- Help Rich 1st, Everyone Else 2nd

KEYNESIAN

• Followers
• J.B. Keynes
• Say's Law
• Depressions refute Say's Law
• Demand creates own Supply
• Under Spending Persists 
• Savings and Investments
• Savings is not equal to Investment
• Different Motivations
• Savings
• Future Needs
• Precaution
• Habit
• Income Level
• Interest Rate
• Investment
• Interest Rate
• Rate of Profit
• Expectations
• Loan able Funds Market 
• Investment from Savings, Cash, and Checking Accounts
• Lending creates Money which leads to the Supply of Money Increases
• Inflation and Unemployment are Unstable
• Wages/ Price Inflexibility
• Ratchet Effect- Prices and Wages inflexible Downward
• Supply Curve
• Horizontal
• Output and Employment
• Determined by AD
• Unemployment
• Usually exists
• Causes:
• External (War)
• Internal (Savings is not equal to Investment)
• Aggregate Demand
• Changes due to Determinants
• Unstable even if Money Supply is stable due to Fluctuations in Investment Spendings
• Basic Equation
• C+Ig+G+Xn
• 1973- Present
• Role of Government
• Fiscal Policy- Tax and Spend
• Active Government
• Economy is not Self Regulating
• Inflation
• Too much Demand

Short Run last a Long Time

Emphasis Today= Macroeconomics

• Other
• Flawed Competition
• AD is key; not AS
• Leaks+Savings=Recession
• Ratchet Effects and Sticky Wages block Say's Law
• We are doomed in the Long Run