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Keynesian Economics

Keynesian Economics - KEYNESIAN ECONOMICS What is Keynesian...

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KEYNESIAN ECONOMICS What is Keynesian Economics? o A theory on how to prevent a recession and curb inflation based on the circular flow of money. o Keynesian economics warns against the practice of too much saving and not enough spending in the economy, and it also supports considerable redistribution of wealth by the government, when needed. Who is John Maynard Keyes? o A British Economist o Wrote the book “The General Theory of Employment, Interest and Money” o Believed that the government should play an active role in supporting the demand for goods and services in order to preserve employment and prevent a recession. This could be done by lowering interest rates and taxation, as well as funding more public projects. o The need for substantial government spending during the Second World War supported Keynes’ ideas; therefore, after the war many countries implemented Keynes’ philosophies. Flaws in the Theory o Does not take into consideration international trade, assumes it is a closed economy o Tax cuts do not necessarily mean that people will spend more
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