Week 5

Question 1

Components’ of ‘Keynesian’ economics?

Answer 1

1) ‘Keynesians’ will normally be less enthusiastic about the market/private enterprise economy than the ‘Classicals’/’Neoclassicals’.
2) A strong belief in the importance of aggregate demand
3) More confidence in the efficiency of public sector organisations than the ‘neoclassicals’.
4) The most important idea: a belief that the economy is not likely to ‘bounce back’ after an economic shock but can get stuck in a low output, high unemployment rut.
5) A belief that because of point 4, government has a role in guiding the economy.
6) A belief that workers can be involuntary unemployed and cannot get jobs just by accepting lower wages.
7) A belief that the future is uncertain and that firms are therefore often, understandably, cautious about investing in new productive machinery or in taking on more staff.

Question 2

What is Neoclassical synthesis?

Answer 2

The “Neoclassical synthesis” is the name given to the fusion of Orthodox Keynesian macroeconomics and classical microeconomics.

The consensus was that in the long run (years/decades) ‘Classical economics’ should prevail while in the short run, (months/years ) ‘Keynesian economics’ was needed.