KEYNESIAN ECONOMICS

An economic theory stating that active government intervention in the marketplace and monetary
policy is the best method of ensuring economic growth and stability
A supporter of Keynesian economics believes it is the government's job to smooth out the bumps
in business cycles. Intervention would come in the form of government spending and tax breaks in order
to stimulate the economy, and government spending cuts and tax hikes in good times, in order to curb
inflation.

Keynesian economics ( /kenzin/ KAYN-zee-n; also called Keynesianism and Keynesian theory)
are the group of macroeconomic schools of thought based on the ideas of 20th-century economist John
Maynard Keynes. Keynesian economists believe that aggregate demand (total spending in the economy)
does not necessarily equal aggregate supply (the total productive capacity of the economy). Instead it is
influenced by a host of factors and sometimes behaves erratically, affecting production, employment and
inflation.
[1]

Advocates of Keynesian economics argue that private sector decisions sometimes lead to inefficient
macroeconomic outcomes which require active policy responses by the public sector, particularly
monetary policy actions by the central bank and fiscal policy actions by the government to stabilize
output over the business cycle.
[2]
The theories forming the basis of Keynesian economics were first
presented by Keynes in his book, The General Theory of Employment, Interest and Money, published in
1936. The interpretations of Keynes are contentious and several schools of thought claim his legacy.
Keynesian economics advocates a mixed economy predominantly private sector, but with a
significant role of government and public sector and served as the economic model during the later
part of the Great Depression, World War II, and the post-war economic expansion (19451973), though
it lost some influence following the tax surcharge in 1968 and the stagflation of the 1970s.
[3]
The advent
of the global financial crisis in 2008 has caused a resurgence in Keynesian thought.
[4]


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NEOCLASSICAL ECONOMICS

Neoclassical economics is a term variously used for approaches to economics focusing on the determination of
prices, outputs, and income distributions in markets through supply and demand, often mediated through a
hypothesized maximization of utility by income-constrained individuals and of profits by cost-constrained firms
employing available information and factors of production, in accordance with rational choice theory.
[1]

Neoclassical economics dominates microeconomics, and together with Keynesian economics forms the
neoclassical synthesis, which dominates mainstream economics today.
[2]
There have been many critiques of
neoclassical economics, often incorporated into newer versions of neoclassical theory as human awareness of
economic criteria changes.
An approach to economics that relates supply and demand to an individual's rationality and his or
her ability to maximize utility or profit. Neoclassical economics also increased the use of mathematical
equations in the study of various aspects of the economy. This approach was developed in the late-
nineteenth century, based on books

Since its inception, neoclassical economics has grown to become the primary take on modern-
day economics. Although it is now the most widely taught form of economics, this school
of thought still has its detractors. Most criticism points out that neoclassical economics makes many
unfounded and unrealistic assumptions that do not represent real situations. For example, the assumption
that all parties will behave rationally overlooks the fact that human nature is vulnerable to other forces,
which cause people to make irrational choices. Therefore, many critics believe that this approach cannot
be used to describe actual economies.
Neoclassical economics is also sometimes blamed for inequalities in global debt and trade
relations because the theory holds that such matters as labor rights will improve naturally, as a result
of economic conditions.