The Great Depression Of The 1940 ' S Essay example

1183 Words Nov 18th, 2016 5 Pages
Economist John Maynard Keynes was not only credited with the solution to the great depression of the 1940’s, but also as one of the greatest economists of all time. Keynes believed that the macro economy would never be completely stable and government intervention would always be necessary. The idea seemed ludicrous to civilians and economists at the time as the accepted economic theory is what today is termed the classical theory. The classical theory suggests that the macro economy will always stabilize itself after minor swings into both recession and inflation. The term lasissez-faire accurately describes the theory as the phrase translates to “leave it alone.”
The problem, as Keynes concluded, is that a market driven economy is always unstable as inflation tends to fuel inflation, and recession tends to fuel recession. When the economy is entering an inflationary period, consumers demand that their wages increase, leading to growing prices of products and services in order to keep businesses alive. The inflationary cycle continues to repeat itself over again until the government takes charge and enforces policies such as price ceilings or an increase of taxes, which brings the economy to a halt before forcing it back down to equilibrium.
When Keynes examined what the government can do to reverse a recessionary period, the economist found that there are a couple steps that government policy can take. Keynes suggested that the government, “[buy] more output, [employ]…

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