BROWSE

Keynesian Economics

Definition

Keynesian economics are the various macroeconomic theories about how in the short run – and especially during recessions – economic output is strongly influenced by aggregate demand. In the Keynesian view, aggregate demand does not necessarily equal the productive capacity of the economy; instead, it is influenced by a host of factors and sometimes behaves erratically, affecting production, employment, and inflation.

Keynesian economics in an economic theory that advocates the important role government can play in stimulating the economy. The economic theory was put forward during the 1930s by a British economist known as John Maynard Keynes (1883 - 1946).

Keynes is widely considered as one of the most influential economists of the 20th century. He believed that lower taxes and increased government expenditure can result in increased demand of goods that will have a beneficial effect on the economy. Subsequently, the word 'Keynesian Economics' was used to refer to theories that called for increased role of government in improving the economy.

Explanation of Keynesian Economics

Economists that support Keynesian economic theory believe that a country's economic performance can increase and the slump can be prevented through intervention policies of the government. The theory focuses on short term changes in the economy brought about by increased government expenditure resulting in increased demand in a country.

Keynesian economists criticize the classical economic thinking that swings in economic output, employment, and other factors are self adjusting. The classical economic theory whose advocates include Adam Smith, Thomas Malthus, David Ricardo, Jean-Baptiste Say, and John Stuart Mill believed that governments should not intervene in the economy. The classical view purported that a decline in the aggregate demand and the subsequent employment levels, wages, and prices would encourage entrepreneurs to employ more people and increase the investments that would result in economic recovery. However, the laissez faire approach was criticized by several economists after the great depression of the 1930s. In fact, Keynes had put forward his theory after studying the causes of the great depression.

Keynes proposed his views in “General Theory of Employment, Interest and Money,” and other works. He says that structural rigidities and certain other factors in the financial market weaken the economic condition of a country. For instance, the notion that employers will not be encouraged to increased production due to fall in employment levels or wages. They will not produce goods if its demand is weak and cannot be sold. What is required to boost the economy is to improve general economic conditions in a country through increased capital expenditure. And this requires increased spending of the government.


Further Reading


The Post-Keynesian approach to economics
ideas.repec.org [PDF]
… Sheila C. Dow, 1999. "Post Keynesianism and Critical Realism: What Is the Connection?," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol … David Dequech, 1997. "Post Keynesian Economics: Debt … More about this item. Keywords. Economics and Finance; …

Post-Keynesian economics: towards coherencePost-Keynesian economics: towards coherence
academic.oup.com [PDF]
… Sheila C. Dow, 1999. "Post Keynesianism and Critical Realism: What Is the Connection?," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol … David Dequech, 1997. "Post Keynesian Economics: Debt … More about this item. Keywords. Economics and Finance; …

What is Keynesian economics?What is Keynesian economics?
books.google.com [PDF]
… Sheila C. Dow, 1999. "Post Keynesianism and Critical Realism: What Is the Connection?," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol … David Dequech, 1997. "Post Keynesian Economics: Debt … More about this item. Keywords. Economics and Finance; …



Q&A About Keynesian Economics


What does 'Keynesian Economics' refer to?

Theories that call for increased role of government in improving the economy.

Why did Keynes advocate for increased role of government in improving the economy?

He believed that lower taxes and increased government expenditure can result in increased demand of goods that will have a beneficial effect on the economy.

What did Keynes say should be done when there are problems with the economy?

He said that government should step in by increasing spending on public works projects such as infrastructure investment, hiring unemployed workers directly into public service positions, increasing social security payments etc., thereby creating new jobs for those who have lost them through no fault of their own; this policy was called "demand-side" policy because it increases aggregate demand (spending) within an economy by injecting more money into circulation through government spending on goods & services rather than attempting to increase production through supply-side policies such as lowering taxes & reducing regulation so that businesses will hire more workers & produce more goods & services which would then create increased employment opportunities for those out of work; however this type of policy only works if there are idle resources available within an economy's capital stock - i.e., factories sitting idle with unused machinery & raw materials - otherwise known as underutilized capacity - since if all factories were already operating at

What is Keynesian economics?

Keynesian economics is the economic theories of John Maynard Keynes.

What does Keynes say about capitalism?

He says that capitalism is a good economic system. In a capitalist system, people earn money from their work and businesses employ and pay people to work. Then people can spend their money on things they want. Other people work and make things to buy. Sometimes the capitalist system has problems in which case people lose their work or businesses close down due to lack of demand for goods or services, leading to unemployment and loss of income for workers who cannot find other jobs as well as loss of revenue for companies which are unable to sell their products or services at profitable prices. This leads to a decline in aggregate demand (spending) in the economy, causing further job losses and business closures until equilibrium between supply and demand is reached again (the "paradox of thrift").

How do economists support Keynesian economic theory?

They believe that a country's economic performance can increase and slump can be prevented through intervention policies of the government.

What is the economic theory that advocates the important role government can play in stimulating the economy?

Keynesian economics.