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14.2: Introduction to Keynesian and Neoclassical Policy Prescriptions

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  • What you’ll learn to do: compare viewpoints on government spending and taxes between the Keynesian and Neoclassical perspectives

    Person holding a sign with a picture of United States President Ronald Reagan. Sign says "Man is not free unless government is limited. -Ronald Reagan"

    In previous modules, we’ve learned about both the Keynesian and Neoclassical perspectives on the macro economy.  Neoclassicals take a laissez-faire approach to macro policy. They believe that the economy is self-correcting, and doesn’t need government intervention. Indeed, we will see that Neoclassicals believe that government intervention is counterproductive. Keynesians take a more active approach. They believe that the economy takes too long to correct itself and that government has a responsibility to speed things up and minimize the adverse effects of unemployment, inflation and other economic problems.

    In this section, we will drill down into the two perspectives to develop a more nuanced understanding of their strengths and weaknesses. In the process, we will create a stronger understanding of both the power and the limits of fiscal and monetary policy.

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