Compare and contrast keynesianism, monetarism, and neo-classicism how Research Paper

Compare and contrast keynesianism, monetarism, and neo-classicism how do new theories of economics develop overtime - Research Paper Example This paper is an attempt to compare and contrast some of the Macro-economic theories. Before John Maynard Keynes most of the economists of the world believed on the classical theory of macroeconomics. However, the great depression of 1930s turned the tables. The classical theory was appearing to be failing and inconsistent. That allowed a British economist; John Maynard Keynes (Coddington, pp. 23-25)to step up on the stage and present what he thought is the right way to get the economy out of the recession. This theory was the rejection of the classical theory. According to Keynes and his followers, the supply side economics of the classical theory is an obsolete concept (Coddington, pp. 23-25). If the output and employment need to be altered, only the Aggregate Demand had the capability to affect these factors. Therefore, the economy should be a demand side or aggregate demand centered economy. In addition, Keynes and his followers were of the opinion that the aggregate demand of an economy can be calculated by taking â€Å"the summation of government spending, consumption, investment, net exports and others† (Coddington, pp. 37-43). Therefore, by varying the consumption levels and spending by the government, the levels of employment and total output of the economy affects. Keynes also argued that the full employment level of output cannot be achieved and the assumption of classical economists of full employment level of output is not realistic (Coddington, pp. 37-43). Money demand and Money supply are important factors in dealing with the economy. Conversely, this brought up the idea of the LM and IS curve. Furthermore, the point were IS and LM are equal determines the level of output and interest rate. All these assumptions and arguments also indicated that according to Keynes, there is no â€Å"invisible hand† in economy and government intervention is nece ssary to achieve the desired results (Baumol, & Blinder, pp.