Keynesian economics is a school of macroeconomic thought based on the ideas and theories of British economist John Maynard Keynes. It was developed in response to the Great Depression of the 1930s, when governments around the world were struggling to cope with economic instability and slow growth. The main idea behind Keynesian economics is that government intervention can help stabilize an economy by influencing aggregate demand (total spending) through fiscal policy.
In general terms, Keynesian economists believe that if total spending falls below a certain level, it may lead to prolonged periods of recession or deflation (falling prices). To prevent this from happening, they advocate for government intervention through monetary and fiscal policies. These policies involve increasing government spending during recessions or depressions as well as lowering taxes in order to stimulate consumer demand and investment activity.
An important concept in Keynesian economics is “the multiplier effect,” which states that any increase in overall spending will have an even larger impact on output than its initial value due to increased production by businesses who are able to benefit from more customers buying their goods or services. This means that if the government spends money on infrastructure projects like roads, bridges, schools etc., those investments could create jobs and help boost economic output even further down the line.
Keynesian economics has been applied both at a national level and globally since it first emerged in 1936 with John Maynard Keynes’ publication “The General Theory of Employment Interest & Money” This theory has had its critics over time but remains influential today among many economists including some central bankers who use it as one tool amongst others when determining monetary policy decisions such as setting interest rates
