Classical economists believe that prices, wages, and rates are flexible and that markets tend to clear unless hindered by government policies. These ideas are based on Adam Smith's theories. The term 'classical economists' was used by Karl Marx and later by Keynes to describe earlier economic thinkers with whom they disagreed. Keynesian economics, founded on the works of John Maynard Keynes, focuses on aggregate demand as the main factor in issues like unemployment and the business cycle. Keynesians advocate for active government intervention through fiscal and monetary policies to manage the business cycle. They believe that certain rigidities, such as sticky prices, prevent the proper clearing of supply and demand. The Monetarist school, associated with Milton Friedman, argues that monetary policy is more effective than fiscal policy in managing aggregate demand. Monetarists prefer policy rules that promote stable inflation rates. The New Classical school integrates microeconomic foundations into macroeconomics, emphasizing rational expectations and the voluntary nature of unemployment. The Austrian School, which is gaining popularity, focuses on the role of monetary policy in economic cycles and the interconnectedness of microeconomic markets.
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Different Schools of Macroeconomic Thought

Classical economists believe that prices, wages, and rates are flexible and that markets tend to clear unless hindered by government policies. These ideas are based on Adam Smith's theories. The term 'classical economists' was used by Karl Marx and later by Keynes to describe earlier economic thinkers with whom they disagreed.

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