Explain the viewpoints of classical and Keynesian economists. How did the economy that existed at the time of these theories influence them? Which theory is more appropriate for the economy today? Why?
With classical economists believe that people supply things to the economy so they have income to demand things of value they supplied. This type of economist also believe that money is always in the economy even when people put money away in the form of savings in a banks or stocks because that money still is flowing back into the economy in the form of investments (banks loan this money to industries to invest in further development). So, investments can take on the form of money to help acquire new machines, labor, building, supplies, etc. Also, money flows from a business to people in the form of payroll, then this household money is spent by individuals in the economy. This view indicates supply will never change to adjust to meet consumer spending. The demand can move by changes and the produced items change in price to match consumer spending.
The Keynesian economics looks at the problem of supply and demand separately. Basically, supply generates income. What people make other people buy, and so the value of supply is always equal to the value of income. The income is then passed on to the consumer in the form of payroll (checks). Then the consumer spends their payroll money to buy products. The consumer always splits income on consumption and savings, saving some, spending most.
