Keynesian Economics Summary

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Section 1: John Maynard Keynes was an economist that criticized the classical view of macroeconomics. In his book the general theory of employment, interest and money (1936) Keynes rejects the classical argument that markets would clear and believed it was unable to explain the causes of the harsh worldwide economic crash or provide sufficient public policy solutions to advocate production and employment. The main objective of Keynes’s theory is the arguments that aggregate demand—measured as the amount of expenditure by households, businesses, and the government—is the most crucial motive in an economy. Keynes again insisted that free markets have no self-balancing structures that lead to complete employment. Keynesian economists advocate…show more content…
Since then, the name “Keynesian economics” was used to refer to the notion that ideal economic performance could be accomplished – and economic declines prevented – by influencing aggregate demand by way of stabilization and economic intervention procedures by the government. Keynesian economics is understood to be a “demand-side” theory that concentrates on changes in the economy over the short-term. Demand-side economics is a way of eliminating an economy of a recession and stirring economic prosperity while avoiding inflation. It is designed as a control on both development and retraction, to maintain an economy in a stable area. The concept is that to encourage growth, a government must lower taxes on the middle and working people, and boost government expenditure. To battle increasing inflation in a growing economy, a government should raise taxes and lower…show more content…
However in the 1970’s Keynesianism became less popular as there was increasing criticism of Keynesian demand management. The economy still fluctuated and the numerous macroeconomic issues seemed to be growing worse. These powerful criticisms came from monetarists. Monetarist economists questioned the capability of governments to manage the business cycle with fiscal policy and disputed that practical use of monetary policy would relieve the economic crisis. Another group that scrutinized Keynes ideas were the Austrian School of Economics. They believed that economic downturn was part of the natural process and that government intervention would only damage the recovery process of the economy. However in 2007 there was a revival of Keynesian economics due to the worldwide financial crisis. It was the theoretical foundations of the economic procedures in reply to the crisis by various governments, including the United States and United Kingdom. In 2008 as the worldwide recession was unfolding, Harvard professor N. Gregory Mankiw
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