Examples of Keynesian in the following topics:
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- Keynesian economics states that in the short-run, economic output is substantially influenced by aggregate demand.
- According to the Keynesian theory, aggregate demand does not necessarily equal the productive capacity of the economy.
- Keynesian theorists believe that aggregate demand is influenced by a series of factors and responds unexpectedly.
- John Maynard Keynes introduced Keynesian theory in his book, The General Theory of Employment, Interest, and Money.
- Differentiate "Chicago School" or "Austrian School" economists from "Keynesian School" economists
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- Neoclassical and neo-Keynesian ideas can be coupled and referred to as the neoclassical synthesis, combining alternative views in economics.
- These different perspectives have motivated economists to generate the neoclassical and neo-Keynesian perspectives.
- Neo-Keynesian economics is often confused with 'New Keynesian' economics (which attempts to provide microeconomic foundation to Keynesian views, particularly in light of stagflation in the 1970s).
- Much of the conceptual value is captured in the previous atoms on Keynesian views, but the substantial value of a few neo-Keynesian ideas is worth reiterating:
- Stagflation (economic stagnation and inflation simultaneously) created issues with this however, necessitating New Keynesian ideas (as discussed briefly above).
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- Keynesian theory posits that aggregate demand will not always meet the supply produced.
- John Maynard Keynes published a book in 1936 called The General Theory of Employment, Interest, and Money, laying the groundwork for his legacy of the Keynesian Theory of Economics.
- With this overview in mind, Keynesian Theory generally observes the following concepts:
- IS-LM : While the IS-LM Model is a complicated byproduct of Keynesian economics, it can be summarized as the relationship between interest rates (y-axis) and the real economic output (x-axis).
- While Keynesian Theory has been expounded upon significantly over the years, the important takeaway here is that aggregate demand (and thus the amount of supply consumed) is not a perfect system.
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- Keynesian economists argue that government budgets should be balanced over the business cycles.
- Keynesians argue that increasing government spending and decreasing taxes can minimize the painful effects of a recession.
- Once an economy moves into a growth cycle, Keynesians believe the government should shift its perspective and try to run a budget surplus by decreasing spending and increasing taxes.
- By balancing deficits in recessions and surpluses in growth, Keynesians believe that the government can obtain the benefits of a balanced budget without facing the risks of making recessions worse due to spending and revenue limitations.
- John Maynard Keynes founded the Keynesian school, which promotes balanced governmental budgets over the course of the business cycle as opposed to annual balanced budgets.
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- In times of recession, Keynesian economics suggests that increasing government spending and decreasing tax rates is the best way to stimulate aggregate demand.
- Keynesians argue that this approach should be used in times of recession or low economic activity as an essential tool for building the foundation for strong economic growth and working towards full employment .
- In times of economic boom, Keynesian theory posits that removing spending from the economy will reduce levels of aggregate demand and contract the economy, thus stabilizing prices when inflation is too high.
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- Keynesian economists argue that private sector decisions sometimes lead to inefficient macroeconomic outcomes which require active policy responses by the public sector in order stabilize output over the business cycle.
- According to Keynesian economics, if the economy is producing less than potential output, government spending can be used to employ idle resources and boost output.
- Keynesian economists advocate counter-cyclical fiscal policies.
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- Conservatives are more likely to reject Keynesianism and are more likely to argue that government should always run a balanced budget (and a surplus to pay down any outstanding debt), and that deficit spending is always bad policy .
- Liberals are more likely to be Keynesian and Post-Keynesians than Republican.
- Broadly, Democrats tend to be more Keynesian than Republicans.
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- Keynesian Cross: The Keynesian Cross is a simple illustration of the relationship between aggregate demand and desired total spending (linear at 45 degrees).
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- The generation of this theory takes into account a combination of Keynesian monetary perspectives and Friedman's pursuit of price stability.
- This would theoretically provide some control over aggregate demand (which is one of the primary areas of disagreement between Keynesian and classical economists).
- Monetarism began to deviate more from Keynesian economics however in the 70's and 80's, as active implementation and historical reflection began to generate more evidence for the monetarist view.
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- Understanding the inputs, and expected outcomes, is critical to understanding the economics behind reacting to economic crises (particularly from a Keynesian perspective).
- This is largely based on the Keynesian concept of driving spending through enabling spending, in turn driving up demand, creating jobs, and driving spending up further.
- President Obama's administration was criticized by classical economists for employing this as well as Keynesian economists (such as Paul Krugman) for not employing it enough.