The Four Components Of Keynesian Economics

Keynesian Economics is when the economic output is strongly influenced by aggregate demand, which is the total output spending in the economy. This theory is better known for understanding the Great Depression. Keynes argued that insufficient demand will lead to lengthy unemployment. According to this revolutionary idea there are four components that sum up the economy, that being said, the economy has consumption, investments, government purchases, and next exports. These four components are all that matters when it comes down to the economy, and these components can either make or break an economy in a matter of seconds. These components help the economy and they are the reason why we can spend what we can spend. Keynesian economics …show more content…
Real GDP can lead to either inflation or deflation depending on the situation the economy is in. a government chooses to use the real GDP to indicate the standard living arrangements that are happening in the country because that can help them decide if a product will be successful or not. The GDP is usually based off a year’s total, and the graphs will usually be able to show how the economy has changed within the year, this is also referred to as the constant dollar. Real GDP can account to changes in the price level and it provides accurate information, it is most likely always correct information. Potential Gross domestic product differs greatly from the real GDP, the potential product is the level of output an economy can produce at a constant inflation rate. The economy can produce more than its level of output but this is not necessarily a good thing. If the economy produces more than their potential output then they have a higher risk of inflation. With that being said the potential GDP is also known for the output gaps, these gaps can either be positive or negative for an economy, however, both of these gaps will cause inflation. The difference between the two GDP is that the real GDP is known as the output gap, which is known for wasteful. However, real GDP is accurate and always true, it is constant with the numbers being …show more content…
The multiplier is always an estimated number, and is expressed as the reciprocal of the marginal propensity to save. The multiplier is important because it focuses on more money being added into the total income, this is important because it allows people to spend more money. The multiplier is important because it focuses on the circular flow, and it helps with the government’s spending. It allows the government and other things to spend more once it figures out the total income. This is another way to help with investment, this strategy causes the government to allow people to spend more because there is generally more money to be spent on goods and services. The multiplier is important in the economy for many reasons. The more money being added on to the total income the more money people can save, which is why this is also known as marginal propensity to save. However, this will also help businesses because the more money people have the more money they are willing to