Reference no: EM13213146

Since GDP measures the nation's output at current market prices, then if a good or service is not exchanged through the marketplace, it cannot and does not go into GDP A major difference between Classical economists and Keynesian economists is that the Classicals tended to focus more heavily on the demand side of the market while Keynesians focus more heavily on the supply side. According to Classical economic theory, the greatest threat for a market economy is that overproduction will occur, thereby sending the economy into recession. Assuming a two-sector economy: if the level of saving exceeds the level of investment, Keynes would expect equilibrium to be reestablished by/through a decline in interest rates According to Keynesian theory, a movement toward a surplus in the federal budget will have an expansionary impact on the economy. In a Classical model of the macroeconomy, the equilibrating mechanism (to bring saving and investment-or, more generally, leakages and injections-into equilibrium) is the rate of interest. In a Keynesian model, it is the level of income.