Macroeconomic Theories and Policies: An Overview

Abstract

Most economic theory has strong policy implications and is therefore bound up with value judgements. The different schools of economic thought consist of a coherent set of theories and related policy conclusions. In this book we have distinguished between the Keynesian and (neo-)classical approaches to macroeconomics. Each has a characteristic set of theoretical assumptions from which different policy conclusions emerge. Up to the mid-1960s the two approaches could be said to have converged, as is evident from the neoclassical-Keynesian synthesis. There was then a broad consensus that mixed capitalist-type economies should be regulated by means of Keynesian demand-management techniques. Since then a polarisation of views has developed as Keynesian economic policy has been increasingly questioned on both theoretical and pragmatic grounds. In the last few pages we review the theoretical basis for Keynesian economic policy and the critique to which it has been subjected by monetarist, neoclassical and new classical economists.