Keynesian Theory Summary

Keynesian economics is an economic theory based on the ideas of an English economist, John Maynard Keynes, outlined in his book: The General Theory of Employment, Interest and Money, published in 1936, in response to the Great Depression of the 1930s. Keynesian economics promotes a mixed economy, where both the state and the private sector play an important role. The rise of Keynesianism promoted the intervention of the government even in capitalist economy. Keynesian economics served as the standard economic model in the developed nations during the later part of the Great Depression, World War II, and the post-war economic expansion (1945–1973). It lost some influence following the oil crisis and stagflation of the 1970s. The advent of the

The diagram below supports this by considering investment and consumption at different income (Y) levels. Keynes supports the idea of redistributing the wealth, as spending more means earning more, to improve an economy. Keynesian economics further concludes that there is a reason for the massive redistribution of wealth: if the poorer segments of society have access to money, they will likely spend it, rather than save it, thus promoting economic growth. Keynes is perceived by many observers as a savior of capitalism. The argument is that the private enterprise system was failing and Keynes came up with a unique and plan to save the capitalist system by propagating a theory of “mixed economy” whereby the government would act as receiver and administrator of the “national product" (in his

Keynes advised the government to get involved and help create more jobs, which would eventually stimulate the economy as a result of increased output. The government can create more jobs by hiring non-skilled people to perform simple tasks, train them to perform jobs that could be learned easily to generate income. Keynesian economics also encourages the government to manipulate the level of taxes to rekindle the economy, that is, lowering income taxes to allow for more disposable income enabling more spending and through the circular flow, generation of more