what is difference between classical economy and keynesian economy?how fiscal policy affect both?

Answer 1

The classical economy automatically and quickly adjusts during a recession. Prices and wages fall during a recession. That affect profits positively. Production increases and more people are hired. The economy bounces back out of a recession. No government spending or tax reduction (fiscal policy) is necessary to bring economy out of recession. The price mechanism (the invisible hand) works like magic in the classical market economy to rectify economic ills. Classical economy is associated with Adan Smith.

In Keynesian economy, prices and wages are sticky downwards. They do not fall during a recession. Economy doesn't automatically adjust. The result is prolonged unemployment. Government spending and tax reductions (or more generally, fiscal policy) is necessary to stimulate the economy to bring it out of a recession.