Topic: Are you a Keynesian or Are you a Free Market person and is it Aggregate S
ID: 2429022 • Letter: T
Question
Topic: Are you a Keynesian or Are you a Free Market person and is it Aggregate Supply or Aggregate Demand?
What is the whole debate about Aggregate Demand creating Supply versus Aggregate Supply Creating Demand?
Which view do you see in your everyday experience?
Why does this debate continue?
Thinking back to the business cycle discussion, how would Keynesian economists explain the performance of the economy during the last few years?
Next, how would neoclassical economists explain the performance of the economy during the last few years?
Which interpretation makes the most sense to you? Why?
Explanation / Answer
I am a free market person and I have taken aggregate demand.
It is the agrregate demand which creates supply. If the overall aggregate demand increases, it would induce the suppliers to supply more so as to increase their overall revenues and profits.
In my everyday experience,increase in aggregate demand creates more supply. If the kids demand more of food, the mother has to supply more.
Keynesian economists say that the consumption takes place on its own. Whatever is produced gets consumed automatically and thus there is nor supply demand gap in the economy.
Neoclassical economists are of different opinion which states that demand of the goods determine the output. If the demand rises, the producers have to produce more in order to meet the demand requirements.
Neoclassical economists point of view is more logical which states that if the demand rises, producers would supply more to meet the requirements of the consumers.