Question

4. Keynesian economics and neoclassical economics have been challenging, attacking and refuting one another ever since his General Theory from 1936. Present an essay which (a) outlines the basic dispute between them and (b) explains why so old and often repeated debate continues to be a major concern of the mainstream economics profession.

Answer 1

There has been huge difference and some notable ones shared below :

KEYNESIAN

• Keynesian economists argued that capitalism is good system.
• Also government intervention is must when there is recession or hyperinflation
• There is tradeoff between unemployment and inflation
• No crowding out takes place in recession
• Wages are sticky downward causing unemployment

NEOCLASSICAL

• Fiscal policy or government intervention in changing spending causes no long term effects
• Wages are not rigid and flexible
• Tradeoff happens in short run between unemployment and inflation
• Crowding put effect takes place
• Only money supply causes economic changes.

All these theories are highly debated because of lack of empirical evidence across all countries which demonstrate single perfect model. Because any economic event takes combination of both views and any one view always hampers it. Hence the debate shall go on.