What remedies would Classical economists propose for ending

What remedies would Classical economists propose for ending a recession? What remedies would Keynesian economists propose for ending a recession? Also, explain why Classical and Keynesian theory differs regarding the remedies for recessions.

Solution

Classical theorists believed in a laisse faire economy that market forces of demand and supply will bring the economy back to equilibrium level even if it is a considerable recession period. They suggested that reducing savings can bring the economy back to normal when interest rates would fall savings decline and investment rises but this process has hindrances such as liquidity traps and gluts of savings present in the economy. However, Keynes suggested that liquidity trap implies a very low rate of interest such that people would hold more money to buy goods and services rather than to invest. General gluts to savings exist where people have excess inventories and consumer spending is low. Hence government intervention is a must to recover from such a phase and induce aggregate demand ending the glut and introducing multiplier effect.