Keynesian Economics: John Maynard Keynes And The Great Depression

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John Maynard Keynes, a highly influential economist during the 1930s, developed Keynesian economics in an effort to decipher the reasons behind the Great Depression. (Investopedia, 2016) Keynes’s theory focuses on the short run and can be seen as a demand side theory that saw buying power as a way for a country to evade recession. (Stefano, 2012) In the following essay Keynes’s contribution to the economic theory will be discussed.
During the Great Depression, it became evident that the Classical view of the economy could be flawed. High unemployment made it clear that some form of outside intervention was needed to restore the economy to its former healthy self. (Roger Arnold, Hassan Essop, Rachel Jafta, Monique Reid, 2015).
Keynes believed
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According to Keynes wages are sticky, employees and unions would under no circumstances let wages be lowered by employers. If employees’ money wages decrease this would result in a decrease in consumption, this would later can lead to a decrease in income and production. (REUSS, 2009) Keynes believed that wages are inflexible in a downward direction. Figure 2: Keynes's view on wages (Mukherjee, 2015)
Due to Keynes’s belief that wages are inflexible in a downward direction it is clear that the economy is unable to get itself out of a recession. Keynes viewed the economy as unstable and believed that it is not self-regulating. Government intervention is needed to ensure that the economy does not get stuck in a recession. Figure 3: Government intervention in an economy (Libby Rittenberg, Timothy Tregarthen, 2014)
The Great depression gave Keynesian economists astounding evidence that Keynes’s views were extremely accurate. An expansionary fiscal policy quickly put to an end the Great Recession. (Libby Rittenberg, Timothy Tregarthen,
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Currently Keynesian economists are repairing the oversight by incorporating the real and financial segments of the economy.
John Maynard Keynes can be seen as one of the fathers of modern macroeconomic theory. His theories on wages, savings and investment and government intervention can be seen as evolutionary as they are used many decades later, still to describe economics. The only proof that is needed to see the significance of Keynes’s contribution to economics is that an entire section of economics is named after him. If it were not for Keynes governments might still be separating themselves from the business market.
“Long run is a misleading guide to current affairs. In the long run we are all

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