Timothy6340
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does any one know the main ideas of keynesian theory i am haveing trouble understanding it any help would be great
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moll.
Learn to science.
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His main and most famous contribution was through his theories on effective demand, which essentially stated that as economic output is a combination of business, consumer, government and net export expenditures, government has the ability to step into the economy when the private sector refuses to consume (i.e. there is a recession) in order to take up the excess slack in output and ensure standards of living don't start backsliding through a vicious cycle of unemployment and falling consumption.
Drifting95
Should i change my DP?
Good old keynes, my economics class practically worships him.
moll.
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Probably because he's the only economist they know. It's hard to worship people you don't know exist.
Timothy6340
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does any one have a more detailed explination ??
John Maynard Keynes had a simple theory - that was in economic growth there was Aggregate Demand and Aggregate Supply. So pretty much, it was assumed at demand equals supply. So it was assumed that demand in an economy is derived from:
- Consumption (That is people spent money either 'autonomously' (that they HAD to to make a living) or 'induced' (that is as their income GROWS, they spend more on things they dont need)
- Investment
- Government Spending
- Net Exports
He also stated that economic growth was based on Aggregate Supply (the capacity an economy has)
So for instance, aggregate demand drives aggregate supply. When demand is higher than supply, we have higher prices and inflation. Whereas, if demand was lower than supply, then the price will fall.
Keynes theory was demonstrated through the multiplier effect. So go look in your textbook and learn from that under Economic Growth in Topic 3.
But if you look at his Demand and Supply curve, you will notice Aggregate Demand does not start from the bottom of the growth (Thats because demand is independent of income - so no matter how much people earn, there will always be a need to spend to make a living, grow a business or invest)
- Consumption (That is people spent money either 'autonomously' (that they HAD to to make a living) or 'induced' (that is as their income GROWS, they spend more on things they dont need)
- Investment
- Government Spending
- Net Exports
He also stated that economic growth was based on Aggregate Supply (the capacity an economy has)
So for instance, aggregate demand drives aggregate supply. When demand is higher than supply, we have higher prices and inflation. Whereas, if demand was lower than supply, then the price will fall.
Keynes theory was demonstrated through the multiplier effect. So go look in your textbook and learn from that under Economic Growth in Topic 3.
But if you look at his Demand and Supply curve, you will notice Aggregate Demand does not start from the bottom of the growth (Thats because demand is independent of income - so no matter how much people earn, there will always be a need to spend to make a living, grow a business or invest)