Classical macroeconomics is a wide term that is used to refer to the economics of the 19th and 20th Century. Scottish scholar Adam Smith is considered to be the modeler of Classical macroeconomics theory though some elements are said to be earlier developed by some Spanish and French thinkers. There are some other notable contributors to this model; they include David Ricardo, Anne Robert, Jean- Baptist Say, John Stuart and Eugene Bohn von Bawerk.
Before the rise of this model, most of the regional economics were based on around top- down, control and command of government policies. Classical macroeconomics later evolved to be part of economics and as tool to advance political interests and achieve freedom (Christ 53-67).
Classical economics started to develop gradually just after the commencement of western civilization. Capitalism ushered in industrial revolution where businessmen and investors of the time competed with each other. Many scholars tried to explain this economic phenomenon but it was classical economists who provided more sound arguments on effects of capitalism and industrial revolution. Early proponents of classical macroeconomics invented theories on price, value, demand and distribution. Most of those proponents did not believe that government interferences can cause changes in market systems. This led to the coining of the phrase “laissez-faire” which “mean let it be” in French.
It is evident that these scholars did not subscribe to the same school of thought as they had distinct beliefs and their understanding of the market varied. However, there were some notable mutual concepts that they agreed on. Most of them approved the culture of free trade in the market and competition among traders and employees. Classical macroeconomists seemed to be advocating for meritocracies as opposed to class based social settings (Christ 53-67).
Keynesian economics is the theory which explains the effects of total spending and how it influence inflation and output. This model was developed by the British economist John Maynard Keynes in the 1930’s. The aim of this theory was to try to understand the dynamics of the great depression. Keynes opined that there should be an increase in government expenditure and taxes lowered to increase demand. He believed that this would remedy the economy out depression. In light of this it can be argued that the model advocated for circumstances in which favorable economic performance could be achieved and economic shocks prevented lobbying for aggregate demand civil stabilization and friendly economic policies by the government. It can be argued that Keynesian economics is a demand side model which projects on economic changes in the short run.
Before Keynesian macroeconomics there was classical model which implied that swings in economic activities and job market were self-adjusted. Keynote macroeconomists thought otherwise and explained that in case of a collapse of an aggregate economy, production and job opportunities would be weakened prompting a reduction on prices and wages. Observations suggest that low levels of wages and inflation would persuade employers to inject capital investments and hire more personnel beefing up the job market and ensuring an impressive economic growth.
Keynesian economists seemed to disagree with the notion floated by some economists that low wages can ensure full stable employment by objecting that empowers employers will not embark on recruitment exercise to produce products that cannot be sold due to low demands. In other insights, poor working environment may affect firms to cut down capital investments instead of taking the advantage of lower prices to purchase more equipment and tools. The entire expenditure and employment would be reduced due to effects from this scenario (Galí 5-30).
Monetary macroeconomics is a branch of economy which studies the framework for exploring the value of money in the economy. Money can be defined as a medium of exchange, unit of exchange and a store of value. This concept analyses how money is more accepted purely because of the convenience which come it. Further insights include examination of monetary systems and their affiliations to financial institutions and other approved international guidelines.
The interests and demand for money started during the historic era of inflation dubbed Price Revolution. This was occasioned by the fall of value of gold and sometimes recording weird fluctuations because of unregulated supply of gold from new world which was mostly Spain.
This subject has always been linked with macroeconomics with modern studies trying to explain the micro foundations in relations to demand for money. This extends to monetary aspects in macro uses including the role of money in output of aggregate demand. Other aspects of monetary macroeconomics include testing the effects of money as a substitute for other products, assets and services (Brunnermeier 379-421).
From 1990, the historical aspects of monetarisms have been put under examination. This is due to events in which economists term as inexplicable in monetarist terms precisely instability of money in the supply of money trends from 1990’s inflation and the failure of sound money policy to revamp the economy during the 2001- 2002 period. It is accurate to note that fiscal stimulus is very much active and monetary swings are not the only switch for recession (Brunnermeier 379-421).
Christ, Carl F. “A simple macroeconomic model with a government budget restraint.” Journal of political economy 76.1 (1968): 53-67.
Galí, Jordi. Monetary policy, inflation, and the business cycle: an introduction to the new Keynesian framework and its applications. Princeton University Press, 2015.
Brunnermeier, Markus K., and Yuliy Sannikov. “A macroeconomic model with a financial sector.” The American Economic Review 104.2 (2014): 379-421.
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