Question

In 75-100 words (your own, that is) compare & contrast the 3 "schools of thought" covered "in class", the handout/outline, the lecture that goes with it & any other resource you might find. (For example, do they emphasize the demand or supply side of the economy; short-run or long-run; government intervention; et al.). Please help me with that!

Answer 1

To begin with, Classical Economic Thought constitutes the first formally and widely recognized economic school of thought initially propounded by the 18th-century Scottish economist and thinker Adam Smith. Classical economic thought basically advocates that economic efficiency and distributional welfare equity of any market outcome can be ascertained through the free and autonomous interaction between the various components and determinants of market demand and supply devoid of any kind of government intervention or regulation. Therefore, the fundamental essence or tenet of the classical economic thought rests on the notion that the economic markets function most efficiently freely and autonomously without any government intervention or regulation which can subsequently lead to the overall economic development of any nation. Therefore, the concept of laissez-faire economic system is prominent under the classical economic thought and the "invisible hands" as asserted by Adam Smith would naturally ensure proper and efficient resource allocation leading to market efficiency.

The neoclassical economic thought is another prominent and widely known economic school of thought primarily initiated by the works of economists Carl Menger, Leon Walrus, and William Jevons. According to neoclassical economic thought, the economic agents or entities both considering the demand and supply side of the market are rational and their economic decisions and conducts are driven by rational thoughts and understanding. For example, the consumers or buyers on the demand side of the market make consumption or purchase decisions based on the maximization of their respective satisfaction or utility level and the firms or producers on the supply side of the market undertakes production and operational decisions based on the principle of profit maximization. Now, both utility or satisfaction maximization by the consumers or buyers and the profit-maximization by the producers or sellers conceptually depend on the marginal principle of equality which essentially construes that the consumers or buyers maximize their overall utility level by choosing the consumption level of any good or service which corresponds to the equality between the marginal utility or incremental utility obtained from consuming an additional unit of that particular good or service and the per-unit price of that good and service. Similarly, a seller or producer of any particular good or service would produce the total or overall output level which relates to the equality between the marginal cost or incremental cost of producing an additional unit of that product or service and the price or marginal revenue or the additional revenue obtained from selling each unit of output. Hence, the core or fundamental idea of the neoclassical economic thought pertaining to the market functioning is based on this marginal principle and the scientific notion of rationality.

The Keynesian emerged during the early 1930s at the onset and aftermath of the Great Depression of 1929 and gradually gained popularity and momentum. Keynesian economic thought has been attributed to its founder, the British economist John Maynard Keynes who has been universally regarded as one of the most influential economic thinkers of the last century. On the contrary to the classical economic thought, Keynesian economic thought advocates that long-run economic growth and short-run economic progress or stability are essentially driven by various interventionist policies and measures by the government and free and autonomous market forces or components independently cannot determine or ensure the market efficiency and stability. Keynesian thought predominantly focuses or emphasizes on the suitable and appropriate adjustment of the aggregate demand or the overall demand of goods and services in the economy through various fiscal and monetary policy interventions by the government to stimulate short-term economic stability and long-term sustainable economic growth and development. In this regard, the individual fiscal and monetary policies undertaken by the government can positively affect the various individual determinants or components of aggregate demand such as aggregate or overall consumption expenditure or spending on all the goods and services, aggregate investment expenditure or spending, etc. leading to short-term economic adjustments and long-term sustainable economic development.