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What is the main difference between the Keynesian and Classical models?

What is the main difference between the Keynesian and Classical models?

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Answer #1

The main difference between the Keynesian and Classical model is the flexibility of the price, wages and another variable of the economy.

In a classical model, the wages and the price level are very flexible and adjust quickly to the increased or decreased demand and supply in the economy. This allows the classical economy to remain in the equilibrium. But, in the Keynesian economics, the prices and wages are sticky i.e. they don't adjust quickly to the change in the demand and this creates a situation where the unemployment in the economy increases.

This stickiness of the wages and the price in the economy cause the business cycle.

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