The Neoclassical and Kaleckian theories Harvard Case Solution & Analysis

The Neoclassical and Kaleckian theories Case Solution

ABSTRACT

Neoclassical growth theory is frequently that of the equilibrium of aggressive economy through time. It stresses on capital growth, population growth and technical development. It distinguishes momentary equilibrium when the capital stock, the working population and technical know-how are unchanging from long-run stability. Long-run equilibrium is not a chain of momentary equilibria, as it symbolizes the coherent expectations of agents.

The theory has little to say about the ‘animal spirits’ that may conclude an economy's possible growth rate, however it endows with a good base camp for sallies into the study of fastidious economies. In Keynesian theories of employment and income distribution they describe the approach that argues John Maynard Keynes had a targeted demand approach to complete employment. Modern policies aim to close the demand gap and it is contradictory with the Keynesian approach on both theoretical and methodological levels.

The aggregate demand leads to increased inflation and reduction in income distribution close to full employment, which is why true full employment is not probable through long-established pro-growth, pro-investment aggregate demand stimuli. This was understood by Mr. Keynes, who had chosen targeted job creation for the period of expansions. However in recessions, he did not campaign for wide ranging aggregate demand stimuli because different policies have diverse employment creation effects and Mr. Keynes was the primary measure of their effectiveness and efficiency.
There is substantial evidence to argue that Keynes had an “on the spot” approach to full employment, where the problem of unemployment is resolved through direct job creation, irrespective of the segment of the business cycle. (Keynesian_economics, n.d)
Comparison & Contrast of neoclassical and Keynesian theories of employment

Keynes’s effective demand approach to employment determination is not the same as the modern aggregate demand approach.

evisiting Keynes’s involvement makes it clear why pinning the point of effectual demand at full employment is not viable to do by means of aggregate demand stimuli.

This is due to the formation of the economy, which ensures that near full employment, more money expenditures create inflation and corrode income distribution. In order to get to full employment, Keynes argued for an enhanced targeting of demand, which is not essential for more aggregate demand. However a hasty shortfall of aggregate demand can create a serious downturn even in rigorous slumps a targeted approach to unemployment is favored.
According to the neoclassical theory, unemployment rate is controlled. The word voluntary unemployment defines, according to the neoliberal view, both the first and the second case replicate the incapability of the market in order to operate beneath perfect competition because there are monopolistic development in the labor market or because workers have partial information with respect to vacancies.
Therefore, the intransigence of setting wages sliding and the lack of information show the way to unbalanced labor market equilibrium. The solution endorsed by the neoclassical theory is the formation of conditions for the survival of perfect competition, which will allocate to the price salaries mechanism to bring the marketplace in equilibrium and get rid of unemployment.

Comparison & Contrast of neoclassical and Keynesian theories of distribution

Keynesian expands his theory of distribution from features of pricing in inadequate markets. The prices in these markets are frequently based on mark-ups that have been chosen by companies. The mark-up comprises of percentage additions made by firms on top of their prime costs in order to secure gross profit margins.
Therefore, the mark-ups secure the profit-prime cost ratio. In perpendicularly integrated industries, raw materials are reduced and as a result wages are the only prime costs. In this case, mark-ups alone resolve distribution normally...................

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