Economic theories
- Classical theory: The classical theory of economics is based on the idea that markets are self-regulating and that the economy is always at or tending towards equilibrium. This means that the supply and demand for goods and services naturally balance out, and that prices and wages adjust to reach this equilibrium. According to the classical theory, government intervention in the economy is unnecessary and can even be harmful, as it disrupts the natural balance of the market.
- The Keynesian view (demand side): The Keynesian view, also known as the demand side theory, is based on the idea that government intervention in the economy can be necessary and beneficial in order to stabilize output and employment. This theory was developed by economist John Maynard Keynes in the 1930s, in response to the Great Depression. According to the Keynesian view, when the economy is in a recession and unemployment is high, the government can stimulate demand by increasing spending or cutting taxes. This increased demand for goods and services can help to boost economic activity and bring the economy back to full employment.
- The monetarist view (supply side): The monetarist view, also known as the supply side theory, is based on the idea that the money supply is the primary determinant of economic activity. According to this theory, increasing the money supply will lead to lower interest rates, which will encourage borrowing and investment, leading to economic growth. Monetarists also argue that government intervention in the economy, such as through fiscal policy (taxes and spending), is less effective than monetary policy (manipulating the money supply) in stabilizing the economy.