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Keynesian vs. Laissez-Faire Economics

Introduction

The study of economics comprise on three fundamental parts; economic descriptive, economic theories and applied economics. In this paper, we will discuss Economic theories that serve as grounds for economic policies to deal with all economic situations and efficient use of the macro and micro economic factors.

Theories of economists develop an understanding of different types of economics and enable us to make choices among them. The focus for our discussion will be on the Keynesian and Laissez- Faire Economics with an overview of economic theories in applied in the Obama administration since 2008. Some of his decisions include changing earnings tax rates for certain levy brackets, changing student loan programs, conceiving wellbeing care legislation, and changing the method of how penalties are assessed and made when considering with pollution will also be covered.

Keynesian Economics

Keynes's General Theory has been the focus of controversy among writers. It is a repudiation of the foundations of laissez faire. Examples of the wide and increasing adaptation of Keynes's philosophy about government intervention, public investment and other forms of economic policy designed to fill gaps in the private business economy are measures of economic policy. The purpose of Keynes's general theory is to explain what determines the volume of employment at any given time, whether total employment, unemployment broad or some intermediate level. Keynes tries to show that the normal situation of laissez faire capitalism as currently takes place in a fluctuating situation of economic activity, which can run the gamut ranging from total employment to unemployment broad, with a characteristic level far removed of total employment. Another general aspect of the theory is that it explains inflation as easily as unemployment, since both depend critically on the volume of effective demand. When demand is deficient unemployment occurs, and when demand is excessive inflation occurs.

Keynes acknowledged openly that capitalism tends by itself to disequilibrium situations where macroeconomic and social variables are affected severely and sustained over time. Considering that the economic mechanism by itself tends to disequilibrium situations and basically unemployment, Keynes attaches great importance to the state as a kind of external force which regulates the economic mechanism. The role assigned to the State in economic affairs is mainly active. In the Keynesian theoretical modeling, the state is the center of macroeconomic policies. “Keynes provided both a specific rationale, for government's taking a bigger role in the economy and a more general confidence in the ability of government to intervene and manage effectively” (Stanislaw and Yergin, 1936, p.2).

Laissez- Faire Economics

Laissez Faire Laissez Faire is a French expression that identifies an economic doctrine based on the proposition that the functioning of the economy should be left to the free play of the offer and demand, avoiding the intervention of the State or any authority. “Laissez-faire program as the only correct approach to economic matters, and devote a great deal of energy demonstrating the inefficiencies associated with government activity” (Henry, 2008, p. 4). According to this doctrine individuals acting independently and guided ...