Keynesian Economics

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Definition: Keynesian Economics

John Maynard Keynes is a famous economist with his book published in 1936. Keynes is of the view that economic output especially during recession is dependent on aggregate demand where the latter depends on various factors including production, employment and inflation.

Before Keynes has put forth his views forward, it is believed that the economic output is entirely consumed as there is always more need than the supply which was the general view. Keynes also suggested two important measures that needs to be taken during the recession period which are as follows:

  1. Cut in interest rates( monetary policy)
  2. Government Investment  in infrastructure (fiscal policy)

It has been so perceived that the above two steps can revive the economy and could give it a kick start in recession. Since a cut in interest rates will be followed by banks reciprocating the same for the common man who will be motivated to invest in new ventures.

Also, investment in infrastructure by government will provide employment and opportunities to many others. Keynes also derived another view where excessive savings than required will bring down the overall economic output as this will indirectly lead to decrease in supply.


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