Keynesian Economics Theory: Definition, Examples

Understand the “Keynesian Economics Theory” By Our Experts

Keynesian economics theory generally discusses the force that is being used to drive the economy — the total expenses incurred for producing goods and services by the government as well as the private sector. Under this model, the total expenses classify the entire economic outcomes that range from manufacturing to rate of employment. In Keynesian economics theory, demand is quite important — and sometimes it erratic. He discussed that the affluence of the economy can be waning even if their production capacity is undiminished because regression and falling-off are proportional to demand.

A Sneak Peek into the World of Keynesian Economics

At the time of Recession that took place in the 1930s, John Maynard Keynes developed an economic theory. In his books (A Treatise on Money, The General Theory of Employment, Interest and Money, and The Economic Consequences of the Peace) coagulated the economic theory which is also known as Keynesianism, on the business cycle, aggregate demand, and involuntary unemployment. And, these are not just explained the ways in which the Great Recession 1930s could have happened but also helps in finding solutions which can be followed by the government and central banks to solve this crisis. However, the top three principal views of Keynesian Economics Theory in terms of “how the economy of a country works” are –

• Collective demand is affected by several economic decisions; it may be private and public as well. Private sector decisions generally indicate to unfavourable macroeconomic outcomes, like decrease in customer spending at the time of recession. Such market failures entitle active government policies, like fiscal stimulus package. Hence, it can be said that Keynesian economics helps in guiding the mixed economy, especially those who are guided by private sectors but partly managed by the government.
• Prices including wages and salaries react slowly in demand and supply change. As a result, it results in periodic surpluses and shortages, mainly labour.
• When there is an anticipated or unanticipated change in aggregate demand, then there can be a short-run effect on employment and exact result, but not on price. Keynes relies on that when prices are rigid, then fluctuations in investment, consumption, or government expenditures cause a change in output. In case, when the government maximises its spending then the output will be increased.

What are the Major Keynesian Concepts?

After understanding the evolution of Keynesian Economics Theory, it’s the time to know about its concepts. In this section, our experts providing economics assignment help have discussed the major Keynesian concepts.

• People are very much likely to earn and save extra money at the time of emergency.
• In case, if all becomes fearful then it is possible that all of them will try to maximise the number of their reserves.
• When all of them start trying maximizing their reserves in the same period, then it will not be possible to spend enough to buy goods and services.
• When there is a lack of spending on services for sale and/or buying products, then fear level tends to increase within the economy. As a result, it will cause people to maximise their money reserves and thus the cycle will take place.

This business cycle can be quite difficult to stop because all the individuals are not likely to get the things they want. The only approach to increase reserve is by selling products or rendering services to someone. Those people might be unenthusiastic to avail services or buy products because they will also be looking to maximise their reserves. This is called the “paradox of thrift”. To know more about this, concept, you may look for the best assignment help service provider and we can be the best option.

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