Classical
- Economy is in full employment
- The wages and prices are very flexible
- There is no need of fiscal or monetary policy
- The Aggregate supply curve is Vertical according to classical so any rise in aggregate demand will increase prices not production
- There is a direct relationship between the money supply and the price level
- Saving-investment equality is brought about by the rate of interest mechanism
- Supply creates its own demand
- Laissez Faire or Capitalistic economy
- Automatic adjustment works
- Long run concept
- Saving is good
Keynesian
- Economy may not be in full employment in short run
- Wage are rigid and prices are sticky (menu cost etc)
- Fiscal as well as monitory policy may be needed to correct the disequilibrium or improve the efficiency of economy
- Aggregate supply is upward sloping in the short run so a rise in aggregate demand may rise the production as well
- No such direct relationship exists between the money supply and price The relation is only indirect.
- The equality between saving and investment is brought about by the income level.
- Demand creates its own supply
- No is no adjustments
- No laissez Faire
- Short run
- Saving is bad