The Pros And Cons Of Keynesian Theory

Keynes economic theory was heavily influenced by the economic principals of fiscal policy and the government using checks and balances to regulate the ever changing economy. Keynes did not believe that the private sector would always or even generally make decisions that would benefit the economy or other people as a whole. Keynesian theory could be summed up by the beliefs of the fiscal policy system. Fiscal Policy is how the government uses checks and balances to help regulate and protect the nations economy. The federal government can raise and lower taxes, as well as change spending habits in order to influence the nations economy. In a recession, the government would reduce tax rates and increase its spending in private sectors in order to help stimulate the economy. In a period of inflation the government could raise taxes and cut its spending in other sectors in order to slow the growth of the economy. Fiscal policy is controlled by the government, and can have dramatic influences on the economy. Some pros of fiscal policy are that it is controlled by the government and can be used to create broad or focused changes in many markets. Some cons are that it is controlled exclusively by the government and can be prone to government bias or corruption.

Part 2: Monetary theory is the basic rules and underlying guidelines of how monetary policy should be used in a society. Monetary policy is …show more content…
Monetarists believe that in order for the government to have enough money to spend, disperse, and ultimately influence the economy, the government would need to increase borrowing and raise tax rates. Both of those directly impact the economy by raising interest rates and taxes; doing either of those influence businesses in a negative manner. If taxes and interest rates are rising, then they will be less likely to invest in themselves or grow. Monetarists do not believe government spending is the