Similarities Between Keynes And Hayek

Keynes and Hayek have very different views on their opinions on the stability of the economy and the reasons for the business cycles. Keynes has a belief that the key to economy is consumption and that has driven the economy in different business cycles which are very much dependent on animal spirits. He also believes that the market is volatile and requires some discretion and needs to be steered by the government. In order to drive growth and employment to help with stimulus packages and interest rates, spending needs to be done. He believed in more government spending. Hayek has a belief of self-corrections. He believes that the economy will fix itself. He also believes that the reason for various business cycles is driven by interest rates. Hayek is one who advocates for free market, but was opposed to government intervention. He also believed that …show more content…
He believes that as long as the money is flowing in the market that the economy will keep going. He doesn’t mind what activities or sector the money should flow as long as it is circulating in the economy. He advocates for government intervention of market through fiscal and monetary policies to steer the market. Keynes advises expansionary monetary policy a recession which is lowering down the interest rates. Low interest rates provide cheap credit to boost spending and investment. In case lowering the interest rates is not enough, he suggests that the deficit financing be restored. The reserve requirement of the banks is reduced, which increases the bank’s capacity to lend. Money multiplier effect also happens by lowering the reserve requirements. The multiplier effect depends on the requirements set by the reserves. In order to calculate the impact of the multiplier effect, you must first calculate the total deposit at the banks and multiply by the reserve