Economic Point of View Essay - Economic Points of View The Keynesian theory supports the idea that aggregate demand is influenced by public and private

Economic Point of View Essay - Economic Points of View The...

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Economic Points of ViewThe Keynesian theory supports the idea that aggregate demand is influenced by public and private economic decision and it is unstable. Because they believe that aggregate demand isunstable, if it were to change, it would have the greatest impact on short-run real output and employment. Since they hold that prices and wages are inflexible downwards, they believe that it would take a long time for the economy to return back to normal on its own, so they favor government involvement in the economy. Keynesians believe that the monetary policy is more effective than the monetary policy. Strengths of the Keynesian theory include that it increases employment rates and moderates interest rates. Because of the government involvement in theeconomy due to the Keynesian theory, the government would fund companies, and would in turn allow companies to hire more workers. Government spending in a market system would also encourage a decrease in overall demand for loans, essentially reducing interest rates and inflation. Weaknesses of the Keynesian theory include that it takes an unreasonably long time

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