Keynesian Economics

John Maynard Keynes was an economist born in 1883 who’s ideas fundamentally changed the theory and manner is which macroeconomic practise and policy is conducted. His primary research delved into the effect of government spending on inflation, output and employment, especially in weak economic periods such as during a recession and depression. Keynesian economics is considered a “demand-side” theory that focuses on the dynamic changes of an economy in the short run as aggregate demand stimulation is the primary intention of the theory.

Following the Great Depression, Keynes felt that the pre-existing “classical economics” wasn’t effective in guiding policy makers at the time, birthing Keynesian economics which provided an alternative perspective on macroeconomics which integrated behavioural economics into the theory, becoming a pivotal theory used by most modern day policy makers.

Keynesian economics is often known as “Depression Economics” because the Great Depression was the time period that Keynes dominated most of his research in. Reforms in macroeconomic theory was crucial at the time because “classical economics” failed to account for the threats in the Great Depression, for example, a principal assumption of classical economics was during a downturn in the economic, real wages and profits would decrease and consequently, businesses would be rationalised to employ more…