Keynesian economics was developed by the British economist John Maynard Keynes during the 1930s in an attempt to understand the Great Depression. Keynesian economics is considered a “demand-side” theory that focuses on changes in the economy over the short run. Keynes’s theory was the first to sharply separate the study of economic behavior and markets based on individual incentives from the study of broad national economic aggregate variables and constructs.
- Keynesian Economics offered a new approach to investment, production, and inflation.
- Keynesian Economics helps in understanding how the economy fluctuates in the short run.
- Keynesian helps in understanding the occurrence of recessions and cyclical unemployment.
- Keynesian Economics focuses on active government policies to manage aggregate demand to prevent economic recessions.
- Keynesian Theory is critical of the classical economics
- Keynesian Theory helped with a new way of looking at spending, output, and inflation.
- Keynesian Economics claims that governments can influence the demand for goods and services by altering tax policies.
Keynesian Economics is generally stated in terms of aggregate demand and aggregate supply. According to Keynesian theory, the equilibrium level of income in an economy is determined when aggregate demand is equal to aggregate supply.