ABSTRACT
This chapter focuses on the Classical and Keynesian approaches to savings and investment, to labor supply and demand, and to aggregate supply and demand. Traditional Classical economists believe that the oversupply of workers will be cured as competition among workers forces wages and salaries to drop. In discussing the market for all goods and services, Classical economists take the supply and demand analysis used to describe the market for a single good or service and expand it to include the demand for and supply of all goods and services for real gross domestic product. The Keynesian view of aggregate supply and demand is totally different from that of Classical macroeconomics. It seldom uses the terms aggregate supply and aggregate demand, substituting instead the study of the concrete process of receipt of aggregate income and aggregate spending. For Keynesians, spending is like the flow of a great river; money flows from consumers, investors, foreigners, and the government.
