The field of macroeconomics is organized into many different schools of thought, with differing views on how the markets and their participants operate.
ClassicalClassical economists hold that prices, wages and rates are flexible and markets always clear. As there is no unemployment, growth depends upon the supply of production factors. (Other economists built on Smith's work to solidify classical economic theory. For more, see Adam Smith: The Father Of Economics.)
KeynesianKeynesian economics was largely founded on the basis of the works of John Maynard Keynes. Keynesians focus on aggregate demand as the principal factor in issues like unemployment and the business cycle. Keynesian economists believe that the business cycle can be managed by active government intervention through fiscal policy (spending more in recessions to stimulate demand) and monetary policy (stimulating demand with lower rates). Keynesian economists also believe that there are certain rigidities in the system, particularly "sticky" wages and prices that prevent the proper clearing of supply and demand.
Post KeynesianThe Post Keynesian school, also known as New Keynesian school, attempts to add microeconomics foundations to traditional Keynesian economic theories. While New Keynesians do accept that households and firms operate on the basis of rational expectations, they still maintain that there are a variety of market failures, including sticky prices and wages. Because of this "stickiness", the government can improve macroeconomic conditions through fiscal and monetary policy.
ClassicalClassical economists hold that prices, wages and rates are flexible and markets always clear. As there is no unemployment, growth depends upon the supply of production factors. (Other economists built on Smith's work to solidify classical economic theory. For more, see Adam Smith: The Father Of Economics.)
KeynesianKeynesian economics was largely founded on the basis of the works of John Maynard Keynes. Keynesians focus on aggregate demand as the principal factor in issues like unemployment and the business cycle. Keynesian economists believe that the business cycle can be managed by active government intervention through fiscal policy (spending more in recessions to stimulate demand) and monetary policy (stimulating demand with lower rates). Keynesian economists also believe that there are certain rigidities in the system, particularly "sticky" wages and prices that prevent the proper clearing of supply and demand.
Post KeynesianThe Post Keynesian school, also known as New Keynesian school, attempts to add microeconomics foundations to traditional Keynesian economic theories. While New Keynesians do accept that households and firms operate on the basis of rational expectations, they still maintain that there are a variety of market failures, including sticky prices and wages. Because of this "stickiness", the government can improve macroeconomic conditions through fiscal and monetary policy.
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