Keynesian and Classical economics

INTRODUCTIONThe general theory by Maynard Keynes states that the take of employment is determined by the marginal efficiency of capital, marginal propensity to consume and the reliable interest rates, he also the train of output and employment is determined by aggregate implore and that the aggregate demand can be change magnitude through an increase in government expenditure.Keynes and so advocated for government intervention in steering the economy while the spotless economist argued that the government should not interfere with the running of the economy, on unemployment according to Keynes theory this task could be resolved by the use of government policies, the two theorists differ in the causes and the solutions of unemployment, to the continent economists unemployment is caused by excess ply which is caused by high wage rates, high wage rates means depression demand and therefore this causes unemployment, therefore the stainless economist believe that the economy sh ould be left to adjust itself until an equilibrium is reached at full employment.Says law was developed by Jean Say who was a French businessman, according to this theory there cannot be demand without supply, according to this law a recession which is characterized by high unemployment is not caused by low demand or lack of property, however an increase in currency supply will result to inflation. The Says law therefore clearly identifies the difference between the Keynes theory and classical economists in their explanation of the economy.Classical Economists and Says lawClassical economist supports Says law that supply causes demand and that there is never over supply, the Law states that people will supply things to the economy so that they can get money to buy otherwise goods in the economy that are of the same value they have supplied. This is in line with the classical economists who argue that money does exist in an economy and that money will flow in the economy and this flow of money flows from the businesses to the people through paying jobs.The classical economist states that the price level is changed by the level of money supply, also that the amount of supply will always be at full employment such that producers will not change the level of supply but will adjust the price levels to achieve the required demand level, therefore because supply creates its own demand then in the commodious run the economy will be at equilibrium and this means very low or no unemployment.According to the Says law the classical economist therefore defined the model of the economy as follows P X Q = M X V, where P is the price level, Q is the bar of goods sold, M is the money supply and V is the velocity of money flow. As the level of money supply increases assuming that the level of money supply is constant then the price or the quantity of goods sold will increase. If on the other hand the money supply increases and assuming that the velocity level remains cons tant then the price level or the quantity demanded will rise, therefore our outcome for the model means that an increase in money supply is inflationally and that an increase in the velocity of money flow will lead to economic development.Keynes Theory and Says lawKeynesians dismisses Says law as a false statement, he argues that supply and demand should be separately analyzed, on supply Keynesians says that supply generates income, people will then consume this income, the largest portion of income goes to use of goods and services while the rest is saved, they analyzed the consumption levels of the income in terms of marginal propensity to consume which will rise as the level of income rises.The Keynesian economist therefore considered the model of the economy as Y = C + I + (X-M) where Y is income, C is consumption, I is the investment X is exports and M is imports. The model is further analyzed as C = (a + b Y) where a is the autonomous income level, b is the marginal propensit y to consume and Y is the income level.ConclusionWe can conclude that the Says law is the major difference between the Keynes theory and the classical economists, the classical economist support the Says law and also advocate for a free market economy while Keynes argues that the government can solve the problem of unemployment in an economy through an increase in spending to increase the aggregate demand that results to lower unemployment levels.ReferencesAlan Coddington (2003) Keynesian Economics The First Principles, Rout ledge publishers, USAlfred William (1991) The Classical Economists and Economic Policy, University of Michigan press, MichiganGeorge Douglas (1967) Macro-economic Theory A Mathematical Treatment, Macmillan publishers, USSteven Kates (2003) Two Hundred Years of Says Law Essays on Economic Theorys Most Controversial Principle, Edward Elgar Publishing, USJohn Fender (1981) Understanding Keynes An Analysis of the General Theory, Wiley publishers, US