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Macroeconomics novice here. From what I can tell, these two economic theories rely on competing assumptions. Keynesian economics is the theory that results fro

Macroeconomics novice here. From what I can tell, these two economic theories rely on competing assumptions. Keynesian economics is the theory that results from assuming the size[0] of an economy will closely follow the amount of aggregate demand. Neoclassical economics is the theory that results from assuming the size of an economy will closely follow the amount of aggregate supply. In microeconomics there is no such duality. Rather, there is an understanding that supply and demand are each elastic with respect to one another. We measure this and reason amount markets while thinking about two explicit quantities: the elasticity of demand and the elasticity of supply. The two numbers (and the ratio between them) will tell you a lot about the effects that various conditions will have on a market. My question is: Is there a corresponding concept of e.g. "the elasticity of aggregate demand" in macroeconomic theory? If so, could articles like this be made more objective by providing concrete measurements of this figure on some time scale, rather than subjectively stating things like "Keynesian economics is hot again"? If not, what prevents or complicates the existence of such a quantity? [0] Please correct me if I am misusing this or any other economic terms and concepts

BenoitEssiambre 9y ago
>If not, what prevents or complicates the existence of such a quantity? I'm not an expert either but this type of thing is incredibly hard to measure not only because of the constantly changing external forces from changing governments, technological progress, "animal spirits" etc., these things alone would make it nearly impossible, but there is also the role of money creation and very imperfectly run central banks around the world destabilizing things even much more. Think of it like trying to measure demand elasticity of bitcoins, it seems to be changing by the minute. Anyways, this whole discussion seems like a straw man to me. How can they pit keynesianism against neoclassicism and gloss over monetarism and the importance of money and central banks? Few serious economists will defend neoclassicism as a main causal factor of recessions at this point. Comparing descendant theories of Keynesianism with descendants of monetarism would be more appropriate.
petilon 9y ago
>> the size of an economy will closely follow the amount of aggregate supply I find this hard to understand. Consider your local McDonalds franchise. According to this theory, if the franchisee makes more Big Macs (i.e., increases supply) the economy will grow. We know that's not true. More customers aren't going to walk in the door just because the franchisee made more Big Macs. Given that he wasn't turning away any customers to begin with, the franchisee can't make more Big Macs until more customers start walking in the door. Stated another way, supply does not drive demand, it is demand that drives supply. This 'neoclassical economics' is balderdash that has been used to give tax cuts to the wealthy, under the guise that such tax cuts will increase supply which will then grow the economy. It won't. It is demand that drives supply. If we must use tax cuts to drive economic growth then give those tax cuts to the middle class, and raise minimum wages, because the middle class will then use the extra money to buy more Big Macs.
- tormeh 9y ago
  >Consider your local McDonalds franchise No. Macroeconomics and microeconomics are different fields for a reason. Doing this doesn't work.
- jules 9y ago
  If you increase the supply of fast food you increase competition which lowers prices so people will consume more. The economy is obviously driven by a balance between supply and demand, with prices being the mediator.
  - petilon 9y ago
    >> If you increase the supply of fast food you increase competition which lowers prices That presupposes that restaurateur was making fat profits. If he isn't, then increasing supply in the absence of higher demand will only result in the restaurant going out of business. But increasing demand will grow the economy even when the restaurateur is making thin profits.
    - jules 9y ago
xapata 9y ago
I'd say Keynesianism can be summed up by his famous statement, "In the long run we are all dead." It's the acknowledgement that simplistic macroeconomic models may describe asymptotic behavior, but while the dynamic system is slowly trending to those ends, many people can suffer. Thus, in the meantime, it'd be good to have some market intervention. Intervention in moderation, for moderation.

BenoitEssiambre 9y ago

>If not, what prevents or complicates the existence of such a quantity? I'm not an expert either but this type of thing is incredibly hard to measure not only because of the constantly changing external forces from changing governments, technological progress, "animal spirits" etc., these things alone would make it nearly impossible, but there is also the role of money creation and very imperfectly run central banks around the world destabilizing things even much more. Think of it like trying to measure demand elasticity of bitcoins, it seems to be changing by the minute. Anyways, this whole discussion seems like a straw man to me. How can they pit keynesianism against neoclassicism and gloss over monetarism and the importance of money and central banks? Few serious economists will defend neoclassicism as a main causal factor of recessions at this point. Comparing descendant theories of Keynesianism with descendants of monetarism would be more appropriate.

petilon 9y ago

>> the size of an economy will closely follow the amount of aggregate supply I find this hard to understand. Consider your local McDonalds franchise. According to this theory, if the franchisee makes more Big Macs (i.e., increases supply) the economy will grow. We know that's not true. More customers aren't going to walk in the door just because the franchisee made more Big Macs. Given that he wasn't turning away any customers to begin with, the franchisee can't make more Big Macs until more customers start walking in the door. Stated another way, supply does not drive demand, it is demand that drives supply. This 'neoclassical economics' is balderdash that has been used to give tax cuts to the wealthy, under the guise that such tax cuts will increase supply which will then grow the economy. It won't. It is demand that drives supply. If we must use tax cuts to drive economic growth then give those tax cuts to the middle class, and raise minimum wages, because the middle class will then use the extra money to buy more Big Macs.

tormeh 9y ago
>Consider your local McDonalds franchise No. Macroeconomics and microeconomics are different fields for a reason. Doing this doesn't work.
jules 9y ago
If you increase the supply of fast food you increase competition which lowers prices so people will consume more. The economy is obviously driven by a balance between supply and demand, with prices being the mediator.
- petilon 9y ago
  >> If you increase the supply of fast food you increase competition which lowers prices That presupposes that restaurateur was making fat profits. If he isn't, then increasing supply in the absence of higher demand will only result in the restaurant going out of business. But increasing demand will grow the economy even when the restaurateur is making thin profits.
  - jules 9y ago

xapata 9y ago

I'd say Keynesianism can be summed up by his famous statement, "In the long run we are all dead." It's the acknowledgement that simplistic macroeconomic models may describe asymptotic behavior, but while the dynamic system is slowly trending to those ends, many people can suffer. Thus, in the meantime, it'd be good to have some market intervention. Intervention in moderation, for moderation.