Keynesian economics refers to the macroeconomic theory and models developed by John Maynard Keynes, emphasizing the importance of aggregate demand (total spending in the economy) in influencing economic output and inflation. According to Keynesian economics:
- Aggregate demand is volatile and unstable, leading to inefficient macroeconomic outcomes, including recessions and inflation.
- Fiscal policy (government spending and taxation) and monetary policy (central bank actions) can help stabilize economic output, inflation, and unemployment over the business cycle.
- Government intervention is necessary during recessions and depressions to mitigate economic downturns and promote full employment.
Keynes’ theories are largely responsible for western nation’s rapid increase in deficit spending and current sovereign debt levels.
« Back to Glossary Index
