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Alfredo Gonzalez
Dennis Watson
ECON-2020
9:00am (M, W, F)
Economics
As the semester comes to a close and students prepare for finals, an opportunity
presents itself to sit back and reflect on all the things learned in class this spring.
the day-to-day events taking place at home and around the world. Having
learned about and studied different economic principles, theories, and models,
will allow us to form our own ideas and opinions about the matter. Two of the
more prevailing schools of thought in the field of economics that we talked about
in class, were the classical model and the Keynesian model. This reflection
aims to succinctly compare and contrast the two models based on what was
and are implemented together as needed. The reason this is possible is because
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classical economic theory, for the most part, addresses the economy in the long
run, while Keynesian theory does so in the short run. Both models are proven to
work but are needed at different times depending on the economy. Classical
economic theory, states that the economy is always at full employment, that
wages and prices are flexible, advocates for free trade, minimal government
intervention in markets, and states that the economy is self correcting, self
regulating, and always operates efficiently. The classical model has been proven
to work and has been the preferred school of thought for the last two centuries or
so. The biggest drawback in classical theory is that it fails to address short-term
spending, lower wages, and less investing and saving. To summarize, the
classical model is the preferred working model in the US but has certain
To contrast, Keynesian economics has only been around since the great
depression and came about as a way to try and explain, understand, and
hopefully solve the global economic problems begot by the Great Depression.
Unlike the classical model Keynes believed that the economy does not always
operate at full employment, that prices and wages are sticky (meaning they take
time to adjust to changes in the economy), and that fiscal and monetary policy
are sometimes needed when times are difficult. Keynes also believed that
rough times, the government should step in and spend more to compensate for
the lack of spending by people. The problem with Keynesian theory is that
government intervention (just like prices and wages) is sticky and it is difficult
once the government has intervened through policy and regulation, to step back
and let markets run their course once the economy has stabilized; what this does
potential problem with this model is that the government could accidently shift
aggregate demand too far right and cause inflation. It is unsustainable for a
Keynesian model provides little incentive for people to improve their own
To touch on the behavioral aspects of both theories, its important to keep in mind
that many people regard economics as a social science, what this means is that
the way people think of money and the economy (both future and present) plays
a huge role in how they make decisions that have a real impact on said economy.
As stated above, one of the problems with Keynesian theory is that there is some
perception about what the current situation of the economy is or will be, whether
that notion is correct or not. What happens is that their decision making is then
based on their notion and this creates a chain effect impacting other firms which
government intervention to be fixed. This is one way how the behavioral aspect
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of economics can have an effect on the national economy. As far as the classical
model goes, it acts in the same way when dealing with human behavior, if
enough individuals or firms believe something, they will act accordingly, thus
the course, supply and quantity demanded are inversely related so if a large
number of individuals thinks a price will fall or rise, the demand will change,
which in turn will impact the supply and at a large enough scale the whole
Personally I believe that both theories have their strong points and their
weaknesses and I think the key to fixing the current economic situation, which
and stagnate wages, lies in a combination of the two models. For instance,
Keynesian economic policies could increase spending but at the same time be
limited as to how long they may remain in effect, that same spending could also
be used to promote other industries that do not include public welfare systems
like social security, and unemployment, these institutions could have funds cut in
reasonably implemented, leaving room for the government to assist those most
in need obviously). On the classical side, I do agree that the economy is self-
regulating and most the time operates to full capacity, I think that just like in
nature, economies are cyclical and the classical model will prevail in the long run
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as the economy changes over time. Although the last decade has been
normal functions until the next large recession happens, which could occur in
happens in the future of the economy and the way we overcome the challenges
facing us today, will largely depend on how this generation decides to prepare