Principles of Macroeconomics Chapter 11 - Classical and Keynesian Theories Classical Theory believes that full-employment is the employment level the

Principles of Macroeconomics Chapter 11 - Classical and...

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Classical and Keynesian Theories Classical Theory believes that full-employment is the employment level the economy will return to, and tends to remain at in the long run. Keynesian Theory holds that unemployment is the normal state of the economy and significant government intervention is required if employment/output targets are to be reached. The classical theory views the demand for money exclusively in terms of investment. It is the Keynesian theory of interest that recognizes the important role of having cash available that controls interest rates. Classical economists did not pay any attention to the money which can never be ignored as a factor of the rate of interest. Keynes theory pays attention to the quantity of money as a factor

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