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Keynesian versus classical policies

Explain why, at one point in time, a Keynesian approach to managing the macro-economy might be appropriate while, at another point in time, a classical approach might be more likely to produce a superior outcome. Make sure the outcome you address includes inflation and employment issues.

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Classical economics, developed in the 18th and 19th centuries, focused on value theory and distribution theory. The value of a product was thought to depend on the costs involved in producing that product. Adjustments in prices would therefore automatically make demand tend to the full employment level. Say's law further expounded on this, stating that recession does not occur because of failure in demand or lack of money. Therefore to recover from a recession, wages should be ...

Solution Summary

Why Keynesian policies work well at times, while classical economic policies are superior at others.