2202 SDSB Principles of Macroeconomics (MECO 121 S6-Lecture)

CP and Attendance Question Only (22nd Feb)

Name: Haider Ejaz Roll Number: 25110282

Q1: What is the difference between classical and Keynesian economists'

views on business cycles and government policies to address them?

Keynesian economics emphasises the use of effective federal policy to regulate

aggregate demand to remedy or avert economic downturns. It supports active fiscal
and monetary policy as the key instruments for governing the economy and eliminating
jobless.

Keynesians recommends that the government increase expenditures and reduce taxes
to transform a fiscal deficit into a surplus, which would result in an increase in total
financial activity and a drop in unemployment.

However, some analysts have critiqued this approach, arguing that firms reacting to
economic incentives will tend to bring the economy to stability unless the government
restricts them from doing so by meddling with pricing and wages. Keynesian economics
also advocates for limited state interference and resuscitation during downturns, in
contrast to free enterprise analysts.