Keynesian Economics

Topics: Macroeconomics, John Maynard Keynes, Unemployment Pages: 3 (731 words) Published: January 26, 2014
Keynesian Economics
John Maynard Keynes and his theories are considered the starting point of modern macroeconomics. He is one of the greatest economists of the 20th century due to his inventing of Keynesian economics. Keynesian economics provided an explanation for the 1930 depressions. Some of the theories of Keynesian economics are that “less spending will lead to less output”. “He rejected the principle that lower wages and lower interest rates will get the economy back on track after a recession” (Gwartney, Stroup, Sobel, & Macpherson, 2013, p.217) He also believed that equilibrium in the economy is achieved when total spending is equal to total output. Some steps to Keynes theories for stopping the downturn of the economy are to create more opportunities for employment. When there are no jobs available and unemployment is high, the demand for products and services as well as spending decrease, which will worsen the economic situation. Second, it is necessary for the government to invest in public projects and to create jobs which assists in the restoration of the economy. Third, we must stabilize the banking industry because if there is no access to funds the economy stops (Angie Mohr Business chronicles). Fourth the government must guarantee the capital necessary to move the economy, and finally the government needs to control spending and apply expansionary fiscal policy where necessary. This can be done by controlling purchases, cutting services, and/or taxes.(Gwartney, Stroup, Sobel, & Macpherson, 2013, p.222). Keynes lived through the great depression of the 1930 and his theories provided a reasonable explanation for it as well as a road map on how to break the cycle. (Gwartney, Stroup, Sobel, & Macpherson, 2013, p.217) The current problems in our economy are a good example of Keynesian principles. The economy was affected by the lack of employment and the lack of funding for small and large business. This created less production and consequently...

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