ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Keynesian economics focus on using active government policy to manage aggregate demand 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.

Detailed explanation-2: -Keynesians believe that, 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, then output will increase.

Detailed explanation-3: -During times of economic recession (or “bust” cycles), Keynesian Economic Theory argues that governments should increase spending on social programs in order to stimulate the job market with an influx of skilled labor.

Detailed explanation-4: -Keynes’s economic theory is based on the interaction between demands for saving, investment, and liquidity (i.e. money). Saving and investment are necessarily equal, but different factors influence decisions concerning them.

Detailed explanation-5: -The Keynesian theory implied that during a recession inflationary pressures are low, but when the level of output is at or even pushing beyond potential gross domestic product, or GDP, the economy is at greater risk for inflation.