Keynesian economics

Keynesian economics (pronounced kaynzian) or Keynesianism, is an economic theory based on the ideas of John Maynard Keynes, as put forward in his book The General Theory of Employment, Interest and Money, published in 1936 in response to the Great Depression of the 1930s.

Related Topics:
Economic - Theory - John Maynard Keynes - The General Theory of Employment, Interest and Money - 1936 - Great Depression

~ ~ ~ ~ ~ ~ ~ ~ ~ ~

In Keynes's theory, general (macro-level) trends can overwhelm the micro-level behavior of individuals. Instead of the economic process being based on continuous improvements in potential output, as most classical economics had focused on from the late 1700s, Keynes asserted the importance of the aggregate demand for goods as the driving factor, especially in downturns. From this he argued that government policies could be used to promote demand at a "macro" level, to fight high unemployment and deflation of the sort seen during the 1930s.

Related Topics:
Macro-level - Micro-level - Potential output - Classical - Economics - Aggregate demand - Unemployment - Deflation - 1930s

~ ~ ~ ~ ~ ~ ~ ~ ~ ~

A central conclusion of Keynesian economics is that there is no strong automatic tendency for output and employment to move toward full employment levels. This, Keynes thought, conflicts with the tenets of classical economics, and those schools, such as supply side economics, the Austrian School of Economics which assume a general tendency towards equilibrium in a restrained money creation economy. In neoclassical economics, which combines Keynesian macro concepts with a micro foundation, the conditions of General equilibrium allow that price adjustment will achieve this goal. More broadly, Keynes saw this as a general theory, in which resource utilization could be high or low, whereas previous economics focused on the special case of full utilization.

Related Topics:
Full employment - Supply side economics - The Austrian School of Economics - Neoclassical economics - General equilibrium

~ ~ ~ ~ ~ ~ ~ ~ ~ ~