GSCWU

Bahawalpur

Classical And Keynesian Theory of Economy

NAME Fatima Ali

CLASS BS IT

SEMESTER 5th (Regular)

ROLL NUMBER 7

SESSION 2021-2025

COURSE INSTRUCTOR Mam Rabia

Classical Economics
The classical theory of economics, dating back to the 18th and 19th centuries, includes
the ideas of economists like Adam Smith, David Ricardo, and John Stuart Mill.

It emphasizes principles such as free markets, self-interest, and limited government

intervention.

Classical economists believed that a laissez-faire approach, where individuals pursue

their own economic interests in competitive markets, would lead to overall prosperity
and economic equilibrium.

Uses of Classical Economics

The revelations made under this school of economics focused on free trade, and a
theory called the 'invisible hand' was the highlight at the beginning stages of domestic
and international supply and demand.

The theory states that the double and competing forces of both the demand-side and
supply-side move the market to achieve equilibrium between the price and production
equilibrium.

Smith's studies helped support domestic trade and led to more productive and
reasonable pricing based on supply and demand in the product markets.

Keynesian theory of economics

The Keynesian theory of economics, developed by economist John Maynard Keynes in
the 20th century,

The central belief of Keynesian economics is that government intervention can stabilize
the economy. Keynes’ theory was the first to sharply separate the study of economic
behavior and individual incentives from the study of broad aggregate variables and
constructs.

Keynesians believe that because prices are somewhat rigid, fluctuations in any
spending component—consumption, investment, or government expenditures—cause
output to change.
If government spending increases, and all other spending components remain constant,
then output will increase.

Difference between Keynesian and classical theory of economics

Classical theory Keynesian theory

Government not interfere Government interfere

The Classical Model involves economic The Keynesian Model involves economic
Growth in the long run Growth in the short run.

Classical economics focuses on the free Keynesian Economics is based on the

market and supply and demand idea that if demand falls short of total
output, governments should step in with
fiscal policies.

flexibility Rigid
 Comparison of Real GDP and Nominal GDP of Pakistan

GDP GDP per Pop.

Year GDP Nominal GDP Real change capita change Population

2022 $376,533,000,000 $362,160,000,000 6.19% $1,536 1.91 % 235,824,862

2021 $348,263,000,000 $341,055,000,000 6.49% $1,474 1.85 % 231,402,117

2020 $300,426,000,000 $320,279,000,000 -1.27% $1,410 1.75 % 227,196,741

2019 $320,909,000,000 $324,412,000,000 2.50% $1,453 1.62 % 223,293,280

2018 $356,128,000,000 $316,507,000,000 6.15% $1,440 1.55 % 219,731,479

2017 $339,206,000,000 $298,165,000,000 4.43% $1,378 1.34 % 216,379,655

2016 $313,630,000,000 $285,509,000,000 5.53% $1,337 1.21 % 213,524,840

2015 $270,556,000,000 $270,556,000,000 4.73% $1,282 1.30 % 210,969,298

2014 $244,361,000,000 $258,334,000,000 4.67% $1,240 1.42 % 208,251,628

2013 $231,218,000,000 $246,797,000,000 4.40% $1,202 1.55 % 205,337,562

2012 $224,384,000,000 $236,404,000,000 3.51% $1,169 1.81 % 202,205,861

2011 $213,588,000,000 $228,394,000,000 2.75% $1,150 2.13 % 198,602,738

2010 $177,166,000,000 $222,284,000,000 1.61% $1,143 2.28 % 194,454,498

2009 $168,153,000,000 $218,769,000,000 2.83% $1,151 2.25 % 190,123,222

2008 $170,078,000,000 $212,745,000,000 1.70% $1,144 2.20 % 185,931,955

2007 $152,386,000,000 $209,186,000,000 4.83% $1,150 2.16 % 181,924,521

2006 $137,264,000,000 $199,543,000,000 5.90% $1,121 2.12 % 178,069,984

2005 $120,055,000,000 $188,427,000,000 6.52% $1,081 2.18 % 174,372,098

2004 $107,760,000,000 $176,896,000,000 7.55% $1,037 2.26 % 170,648,620

2003 $91,760,542,940 $164,483,000,000 5.78% $986 2.21 % 166,876,680

2002 $79,904,985,385 $155,499,000,000 2.51% $952 2.54 % 163,262,807

2001 $79,484,403,985 $151,694,000,000 3.55% $953 3.14 % 159,217,727

2000 $82,017,743,416 $146,488,000,000 4.26% $949 3.12 % 154,369,924