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18 Jun 17
kevinoempty
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30 Mar 15
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economic output is strongly influenced by aggregate demand
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17 May 14
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is the view that in the short run, especially during recessions, economic output is strongly influenced by aggregate demand (total spending in the economy). In the Keynesian view, aggregate demand does not necessarily equal the productive capacity of the economy; instead, it is influenced by a host of factors and sometimes behaves erratically, affecting production, employment, and inflation
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Keynesian economists often argue that private sector decisions sometimes lead to inefficient macroeconomic outcomes which require active policy responses by the public sector, in particular, monetary policy actions by the central bank and fiscal policy actions by the government, in order to stabilize output over the business cycle.
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advocates a mixed economy – predominantly private sector, but with a role for government intervention during recessions.
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According to the theory, government spending can be used to increase aggregate demand, thus increasing economic activity, reducing unemployment and deflation.
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- A reduction in interest rates (monetary policy), and
- Government investment in infrastructure (fiscal policy).
Keynes argued that the solution to the Great Depression was to stimulate the economy ("inducement to invest") through some combination of two approaches:
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By reducing the interest rate at which the central bank lends money to commercial banks, the government sends a signal to commercial banks that they should do the same for their customers.
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Investment by government in infrastructure injects income into the economy by creating business opportunity, employment and demand and reversing the effects of the aforementioned imbalance.[1] Governments source the funding for this expenditure by borrowing funds from the economy through the issue of government bonds, and because government spending exceeds the amount of tax income that the government receives, this creates a fiscal deficit.
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A central conclusion of Keynesian economics is that, in some situations, no strong automatic mechanism moves output and employment towards full employment levels
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Keynes rejected the idea that cutting wages would cure recessions. He examined the explanations for this idea and found them all faulty. He also considered the most likely consequences of cutting wages in recessions, under various different circumstances. He concluded that such wage cutting would be more likely to make recessions worse rather than better.[8]
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Further, if wages and prices were falling, people would start to expect them to fall. This could make the economy spiral downward as those who had money would simply wait as falling prices made it more valuable – rather than spending.
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To Keynes, excessive saving, i.e. saving beyond planned investment, was a serious problem, encouraging recession or even depression.
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Excessive saving results if investment falls, perhaps due to falling consumer demand, over-investment in earlier years, or pessimistic business expectations, and if saving does not immediately fall in step, the economy would decline.
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Classical economists have traditionally yearned for balanced government budgets. Keynesians, on the other hand, believe this would exacerbate the underlying problem: following either the expansionary policy or the contractionary policy[clarification needed] would raise saving (broadly defined) and thus lower the demand for both products and labour. For example, Keynesians would advise tax cuts instead.[10]
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Keynes developed a theory which suggested that active government policy could be effective in managing the economy. Rather than seeing unbalanced government budgets as wrong, Keynes advocated what has been called countercyclical fiscal policies, that is, policies that acted against the tide of the business cycle: deficit spending when a nation's economy suffers from recession or when recovery is long-delayed and unemployment is persistently high – and the suppression of inflation in boom times by either increasing taxes or cutting back on government outlays. He argued that governments should solve problems in the short run rather than waiting for market forces to do it in the long run, because, "in the long run, we are all dead."
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In Keynes's theory, there must be significant slack in the labour market before fiscal expansion is justified.
Contrary to some critical characterizations of it, Keynesianism does not consist solely of deficit spending. Keynesianism recommends counter-cyclical policies.[12] An example of a counter-cyclical policy is raising taxes to cool the economy and to prevent inflation when there is abundant demand-side growth, and engaging in deficit spending on labour-intensive infrastructure projects to stimulate employment and stabilize wages during economic downturns. Classical economics, on the other hand, argues that one should cut taxes when there are budget surpluses, and cut spending – or, less likely, increase taxes – during economic downturns.
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Keynesian economists believe that adding to profits and incomes during boom cycles through tax cuts, and removing income and profits from the economy through cuts in spending during downturns, tends to exacerbate the negative effects of the business cycle. This effect is especially pronounced when the government controls a large fraction of the economy, as increased tax revenue may aid investment in state enterprises in downturns, and decreased state revenue and investment harm those enterprises
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- The people who receive this money then spend most on consumption goods and save the rest.
- This extra spending allows businesses to hire more people and pay them, which in turn allows a further increase in consumer spending.
First, there is the "Keynesian multiplier", first developed by Richard F. Kahn in 1931. Exogenous increases in spending, such as an increase in government outlays, increases total spending by a multiple of that increase. A government could stimulate a great deal of new production with a modest outlay if:
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This process continues. At each step, the increase in spending is smaller than in the previous step, so that the multiplier process tapers off and allows the attainment of an equilibrium. This story is modified and moderated if we move beyond a "closed economy" and bring in the role of taxation: The rise in imports and tax payments at each step reduces the amount of induced consumer spending and the size of the multiplier effect.
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James M. Buchanan and Richard E. Wagner, in Democracy in Deficit: The Political Legacy of Lord Keynes[31] criticized Keynesian economics on the grounds that governments would in practice be unlikely to implement theoretically optimal policies. According to them, the implicit assumption underlying the Keynesian fiscal revolution was that economic policy would be made by wise men, acting without regard to political pressures or opportunities, and guided by disinterested economic technocrats. They argued that this was an unrealistic assumption about political, bureaucratic and electoral behavior.
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Another influential school of thought was based on the Lucas critique of Keynesian economics. This called for greater consistency with microeconomic theory and rationality, and in particular emphasized the idea of rational expectations. Lucas and others argued that Keynesian economics required remarkably foolish and short-sighted behavior from people, which totally contradicted the economic understanding of their behavior at a micro level. New classical economics introduced a set of macroeconomic theories that were based on optimising microeconomic behavior. These models have been developed into the Real Business Cycle Theory, which argues that business cycle fluctuations can to a large extent be accounted for by real (in contrast to nominal) shocks.
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27 Mar 14
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23 Feb 14
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30 Jan 14
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24 Dec 13
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Keynesian economics (/ˈkeɪnziən/ KAYN-zee-ən; or Keynesianism) is the view that in the short run, especially during recessions, economic output is strongly influenced by aggregate demand (total spending in the economy). In the Keynesian view, aggregate demand does not necessarily equal the productive capacity of the economy; instead, it is influenced by a host of factors and sometimes behaves erratically, affecting production, employment, and inflation
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Keynesian economists often argue that private sector decisions sometimes lead to inefficient macroeconomic outcomes which require active policy responses by the public sector,
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fiscal policy actions by the government,
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monetary policy actions by the central bank
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10 Jun 13
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30 Jan 13
Wesley Shu"Keynesian economists believe that, in the short run, productive activity is influenced by aggregate demand (total spending in the economy), and that aggregate demand does not necessarily equal aggregate supply (the total productive capacity of the economy). "
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Keynesian economists believe that, in the short run, productive activity is influenced by aggregate demand (total spending in the economy), and that aggregate demand does not necessarily equal aggregate supply (the total productive capacity of the economy).
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Prior to the publication of Keynes' General Theory, mainstream economic thought was that the economy existed in a state of general equilibrium, meaning that the economy naturally consumes whatever it produces because the needs of consumers are always greater than the capacity of the economy to satisfy those needs.
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This perception rests upon the assumption that if a surplus of goods or services exists, they would naturally drop in price to the point where they would be consumed.
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because there was no guarantee that the goods that individuals produce would be met with demand, unemployment was a natural consequence. He saw the economy as unable to maintain itself at full employment and believed that it was necessary for the government to step in and put under-utilised savings to work through government spending.
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A central conclusion of Keynesian economics is that, in some situations, no strong automatic mechanism moves output and employment towards full employment levels. This conclusion conflicts with economic approaches that assume a strong general tendency towards equilibrium.
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24 Dec 12
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Advocates of Keynesian economics argue that private sector decisions sometimes lead to inefficient macroeconomic outcomes which require active policy responses by the public sector, particularly monetary policy actions by the central bank and fiscal policy actions by the government to stabilize output over the business cycle
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Keynesian economics advocates a mixed economy – predominantly private sector, but with a role for government intervention during recessions – and in the US served as the standard economic model during the later part of the Great Depression, World War II, and the post-war economic expansion (1945–1973), though it lost some influence following the stagflation of the 1970s.[3] The advent of the global financial crisis in 2008 has caused a resurgence in Keynesian thought.[4]
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26 Nov 12
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05 Oct 12
Áine MacDermotInsufficient buying-power (low wages & high prices) caused the Depression. http://t.co/P9CmPJXf
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13 Sep 12
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12 May 12
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Advocates of Keynesian economics argue that private sector decisions sometimes lead to inefficient macroeconomic outcomes which require active policy responses by the public sector, particularly monetary policy actions by the central bank and fiscal policy actions by the government to stabilize output over the business cycle
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Keynesian economics advocates a mixed economy — predominantly private sector, but with a significant role of government and public sector — and served as the economic model during the later part of the Great Depression, World War II, and the post-war economic expansion (1945–1973), though it lost some influence following the tax surcharge[2] in 1968 and the stagflation of the 1970s.
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13 Jan 12
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23 Nov 11
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07 Nov 11
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though it lost some influence following the stagflation of the 1970s. The advent of the global financial crisis in 2007 has caused a resurgence in Keynesian thought.[2]
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06 Sep 11
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Keynesian economics argues that private sector decisions sometimes lead to inefficient macroeconomic outcomes and, therefore, advocates active policy responses by the public sector, including monetary policy actions by the central bank and fiscal policy actions by the government to stabilize output over the business cycle.[1] The theories forming the basis of Keynesian economics were first presented in The General Theory of Employment, Interest and Money, published in 1936; the interpretations
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11 Aug 11
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private sector decisions sometimes lead to inefficient macroeconomic outcomes and, therefore, advocates active policy responses by the public sector, including monetary policy actions by the central bank and fiscal policy actions by the government to stabilize output over the business cycle.[1]
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advocates a mixed economy — predominantly private sector, but with a moderate role of government and public sector
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served as the economic model during the later part of the Great Depression, World War II, and the post-war economic expansion (1945–1973), though it lost some influence following the stagflation of the 1970s.
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Keynes contended that a general glut would occur when aggregate demand for goods was insufficient, leading to an economic downturn resulting in losses of potential output due to unnecessarily high unemployment, which results from the defensive (or reactive) decisions of the producers.
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In such a situation, government policies could be used to increase aggregate demand, thus increasing economic activity and reducing unemployment and deflation.
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the solution to the Great Depression was to stimulate the economy ("inducement to invest") through some combination of two approaches: a reduction in interest rates and government investment in infrastructure.
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11 Mar 11
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08 Jan 11
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microeconomic models that indicate that nominal wages and prices are "sticky," i.e., do not change easily or quickly with changes in supply and demand, so that quantity adjustment prevails
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questions rational decision-making in a perfect information environment as a necessity for micro-economic theory
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11 Nov 10
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25 Jun 10
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02 May 10
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14 Nov 09
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27 Jul 09
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12 Mar 09
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the study of the economy by the relations between aggregates is fallacious, and that recessions are caused by micro-economic factors. Hayek claimed that what starts as temporary governmental fixes usually become permanent and expanding government programs, which stifle the private sector and civil society.
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25 Jan 09
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14 Dec 08
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12 Apr 08
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- Independence of Consumption and current Income (life-cycle permanent income hypothesis)
- Irrelevance of Current Profits to Investment (Modigliani-Miller theorem)
- Long run independence of inflation and unemployment (natural rate of unemployment)
- The inability of monetary policy to stabilize output (rational expectations)
- Irrelevance of Taxes and Budget Deficits to Consumption (Ricardian Equivalence)
Beginning in the late 1950s New Classical Macroeconomists began to disagree with the methodology employed by Keynes and his successors. Keynesians emphasized the dependence of consumption on disposable income and, also, of investment on current profits and current cash flow. In addition Keynes posited a Phillips curve that tied nominal wage inflation to unemployment rate. To buttress these theories Keynesians typically traced the logical foundations of their model (using introspection) and buttressed their assumptions with statistical evidence. [4] New Classical theorists demanded that Macroeconomic be grounded on the same foundations as Microeconomic theory, profit-maximizing firms and utility maximizing consumers.[5]
The result of this shift in methodology produced several important divergences from Keynesian Macro economics: [6]
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22 Jan 08
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13 Dec 06
Travis StilesKeynesian economics promotes a mixed economy, where both the state and the private sector play an important role.
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30 Apr 06
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08 Oct 04
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Keynesian economics From Wikipedia, the free encyclopedia. Keynesian economics, or Keynesianism, is an economic theory based on the ideas of John Maynard Keynes, as put forward in his book The General Theory of Employment, Interest and Money, published in 1936 in response to the Great Depression of the 1930s.
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Keynesian economics From Wikipedia, the free encyclopedia. Keynesian economics, or Keynesianism, is an economic theory based on the ideas of John Maynard Keynes, as put forward in his book The General Theory of Employment, Interest and Money, published in 1936 in response to the Great Depression of the 1930s. In Keynes's theory, general (macro-level) trends can overwhelm the micro-level behavior of individuals. Instead of the economic process being based on continuous "supply side" improvements in potential output, as most classical economics had focused on from the late 1700s, Keynes asserted the importance of the aggregate demand for goods as the driving factor, especially in downturns. From this he argued that government policies could be used to promote demand at a "macro" level, to fight high unemployment of the sort seen during the 1930s. A central conclusion of Keynesian economics is that there is no strong automatic tendency for output and employment to move toward full employment levels. This conflicts with the assumptions of supply side economics, Austrian economics and much of neoclassical economics, that price adjustment will achieve this goal. More broadly, Keynes saw his as a general theory, in which resource utilization could be high or low, whereas previous economics focused on the special case of full utilization.
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Keynesian economics From Wikipedia, the free encyclopedia. Keynesian economics, or Keynesianism, is an economic theory based on the ideas of John Maynard Keynes, as put forward in his book The General Theory of Employment, Interest and Money, published in 1936 in response to the Great Depression of the 1930s.
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Keynesian economics From Wikipedia, the free encyclopedia. Keynesian economics, or Keynesianism, is an economic theory based on the ideas of John Maynard Keynes, as put forward in his book The General Theory of Employment, Interest and Money, published in 1936 in response to the Great Depression of the 1930s. In Keynes's theory, general (macro-level) trends can overwhelm the micro-level behavior of individuals. Instead of the economic process being based on continuous "supply side" improvements in potential output, as most classical economics had focused on from the late 1700s, Keynes asserted the importance of the aggregate demand for goods as the driving factor, especially in downturns. From this he argued that government policies could be used to promote demand at a "macro" level, to fight high unemployment of the sort seen during the 1930s. A central conclusion of Keynesian economics is that there is no strong automatic tendency for output and employment to move toward full employment levels. This conflicts with the assumptions of supply side economics, Austrian economics and much of neoclassical economics, that price adjustment will achieve this goal. More broadly, Keynes saw his as a general theory, in which resource utilization could be high or low, whereas previous economics focused on the special case of full utilization.
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Keynesian economics From Wikipedia, the free encyclopedia. Keynesian economics, or Keynesianism, is an economic theory based on the ideas of John Maynard Keynes, as put forward in his book The General Theory of Employment, Interest and Money, published in 1936 in response to the Great Depression of the 1930s. In Keynes's theory, general (macro-level) trends can overwhelm the micro-level behavior of individuals. Instead of the economic process being based on continuous "supply side" improvements in potential output, as most classical economics had focused on from the late 1700s, Keynes asserted the importance of the aggregate demand for goods as the driving factor, especially in downturns. From this he argued that government policies could be used to promote demand at a "macro" level, to fight high unemployment of the sort seen during the 1930s. A central conclusion of Keynesian economics is that there is no strong automatic tendency for output and employment to move toward full employment levels. This conflicts with the assumptions of supply side economics, Austrian economics and much of neoclassical economics, that price adjustment will achieve this goal. More broadly, Keynes saw his as a general theory, in which resource utilization could be high or low, whereas previous economics focused on the special case of full utilization.
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Keynesian economics From Wikipedia, the free encyclopedia. Keynesian economics, or Keynesianism, is an economic theory based on the ideas of John Maynard Keynes, as put forward in his book The General Theory of Employment, Interest and Money, published in 1936 in response to the Great Depression of the 1930s.
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