The markets are moved by animal spirits, and not by reason.”-John Maynard Keynes
John Maynard Keynes :-
(5 June 1883 – 21 April 1946)
He was an English economist whose ideas fundamentally changed the theory and practice of macroeconomics and the economic policies of governments.
John Maynard Keynes is known as the father of macroeconomics. The British economist’s ideas and economic theories fundamentally changed the theory and practice of macroeconomics and influenced the economic strategies of governments. He is indisputably one of the most influential economists, not just of the 20th century, but of all time.
Today’s markets have been fluctuating wildly. However, it’s important to remember that the daily ups-and-downs of the market need to be viewed through a wider lens. Keynesian theory reminds us to play the long game. Keynes’ wisdom still holds true today.
Keynes theory of economics :-
because prices are somewhat rigid, fluctuations in any component of spending – consumption, investment, or government expenditures – cause output to change.
If government spending increases, for example, and all other spending components remain constant,
output will increase.
British economist Keynes believed that
classical economic theory did not provide a way to end depression.
He argued that uncertainty caused individuals & businesses to stop spending and investing, and government must step in & spend money to get the economy back on track.
Keynes just famous for…
The economic theories (Keynesian economics) on the causes of the prolonged unemployment.
Keynesian Economics :
Keynesian economics is a macroeconomic economic theory of total spending in the economy and its effects on output, employment, andinflation, Keynesian economics was developed by the Britisheconomist John Maynard Keynes during the 1930s in an attempt to understand the Great Depression. Keynesian economics is considered a “demand-side” theory that focuses on changes in the economy over the short run. Keynes’s theory was the first to sharply separate the study of economic behavior and markets based on individual incentives from the study of broad national economic aggregate variables and constructs.1
Based on his theory, Keynes advocated for increased government expenditures and lower taxes to stimulate demand and pull the global economy out of the depression. Subsequently, Keynesian economics was used to refer to the concept that optimal economic performance could be achieved—and economic slumps prevented—by influencing aggregate demand through activist stabilization and economic intervention policies by the government.
KEY TAKEAWAYS
Keynesian economics focuses on using active government policy to manage aggregate demand in order to address or prevent economic recessions.
Keynes developed his theories in response to the Great Depression, and was highly critical of previous economic theories, which he referred to as “classical economics”.
Activist fiscal and monetary policy are the primary tools recommended by Keynesian economists to manage the economy and fight unemployment.
Keynesian economics represented a new way of looking at spending, output, and inflation. Previously, what Keynes dubbed classical economic thinking held that cyclical swings in employment and economic output create profit opportunities that individuals and entrepreneurs would have an incentive to pursue, and in so doing correct the imbalances in the economy. According to Keynes’s construction of this so-called classical theory, if aggregate demand in the economy fell, the resulting weakness in production and jobs would precipitate a decline in prices and wages. A lower level of inflation and wages would induce employers to make capital investments and employ more people, stimulating employment and restoring economic growth Keynes believed that the depth and persistence of the Great Depression, however, severely tested this hypothesis.
In his book, The General Theory of Employment, Interest, and Money and other works, Keynes argued against his construction of classical theory, that during recessions business pessimism and certain characteristics of market economies would exacerbate economic weakness and cause aggregate demand to plunge further.
Neo-Keynesian economics
Main article: Neo-Keynesian economics
Neo-Keynesian IS-LM model is used to analyse the effect of demand shocks on the economy.
N. B :- Painting – A Scene in the Philadelphia Market (1811) by John Lewis Krimmel. The scene depicts a pepper pot street vendor in Philadelphia serving soup from a pot to customers. (here pepper pot is a delicious soup ; http://www.inspirationblog.co.in)
: Motivation : 