Main Ideas of Keynesianism and Its Impact

1. Main Ideas of Keynesianism:

Keynesian economic theory states that macroeconomic tendencies constrain specific behaviors of individuals. political economy or economics since the late 18th century has been based on the idea of continuous development of production and thus increasing economic output. Keynes, on the other hand, believed that a decrease in the aggregate demand for goods was the main cause of economic recession.

2. Influence of Keynesianism:

Keynes pointed out that taxation is a means of stimulating demand. The cause of economic crisis and involuntary unemployment is insufficient effective demand, i.e. insufficient consumption and investment. The solution to the lack of effective demand cannot be found in the spontaneous regulation of the market economy, but must be found in the intervention of the state, especially in fiscal taxation.

Compensatory tax policy is a tax theory put forward by American economist Hansen and others. This regulation, through compensatory tax policy and with the annual fiscal imbalance is realized. He argued that the purpose of such taxes was to limit overexpansion in times of prosperity, and that consumption could be stimulated by stopping these taxes in times of recession and by refunding previously imposed taxes.

Expanded:

Difference between Keynesian and neoclassical macroeconomics:

1. Neoclassical macroeconomics and Keynesianism have become the two dominant schools of modern macroeconomics. The fundamental difference between these two schools of thought is whether or not to recognize the incompleteness of the market, whether or not to recognize the need for government intervention.

2, the neoclassical macroeconomics adhere to the perfection of the market, that the pursuit of self-interest of the economic subject of the future with rational expectations and act accordingly, and therefore the price of all economic resources will be quickly adjusted to achieve the market clearing, the economy automatically tends to equilibrium. In this way, all government intervention in the economy is unnecessary and ineffective.

If the government takes sudden policy interventions beyond people's expectations, although in the short term it may make the economy deviate from equilibrium, and achieve some small, but will only make the economy towards a greater disequilibrium, any government intervention in the economy is less good and more bad.

Baidu Encyclopedia - Keynesianism