Keynesian Economics

john maynard keynes

Keynesian economics is a school of macroeconomic thought based on the ideas of 20th-century English economist John Maynard Keynes. Most economists today are primarily Keynesian-influenced. According to the theory, there exists a cycle in the economy, in which there are years of growth, followed by years of depression or recession, called the business cycle. Keynes′ theory suggested that active government policy could be effective in managing the economy.

Rather than seeing unbalanced government budgets as wrong, Keynes advocated what has been called countercyclical fiscal policies, that is, policies that acted against the tide of the business cycle: deficit spending when a nation’s economy suffers from recession or when recovery is long-delayed and unemployment is persistently high—and the suppression of inflation in boom times by either increasing taxes or cutting back on government outlays.

Keynesian economics advocates a mixed economy — predominantly private sector, but with a moderate role of government and public sector — and served as the economic model during the later part of the Great Depression, World War II, and the post-war economic expansion (1945–1973), though it lost some influence following the stagflation of the 1970s. The advent of the global financial crisis in 2007 has caused a resurgence in Keynesian thought. The former British Prime Minister Gordon Brown, former President of the United States George W. Bush, President Barack Obama, and other world leaders have used Keynesian economics through government stimulus programs to attempt to assist the economic state of their countries.

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