Keynesian Economics is an economic theorem based on the ideology of John Maynard Keynes in his publication ¡°General Theory of Employment, Interest, and Money¡± (1936). Keynesianism holds that a country should adopt expansive economy policy and enhance economy growth through increasing the aggregate demand. It often stressed on the theory of total spending in the economy (aggregate demand) and of its effects on output and inflation .
According to Keynesian Economics, the aggregate demand is influenced by a host of private or public economic decisions, and that it sometimes behaves erratically. Changes in aggregate demand, whether anticipated or unanticipated, have their greatest short-run impact on real output and employment, but not on prices. The Keynesians withhold that the macro economic trend tends to restrict specific individual behaviors. The Political Economics and Economics developed since late 18th century hold to increase economy production through stimulating more production, but Keynesians feels that the decrease on the aggregate demand is the main cause for the economic recession. From such point onwards, Keynesian theory and other theories that was build on the Keynesian¡¯s basis have been classified as part of the macroeconomics, which differs greatly from the microeconomics that focuses more on individual behaviors.
Keynes deemed that aggregate demand decides the level of production and employment. Aggregate demand is the total desired purchases of all the nation¡¯s buyers of final output . In the microeconomic, price, wages and interest rate will perform self-adjustment and such adjustment would result in the moving of aggregate demand towards full-employment level. However, such self-adjustment mechanism did not cause any effect because the key issue is whether insufficient demand exists. According to classical theory, insufficient demand is just a symptom of economy recession but not the cause, because in a normal operating market...
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