Explain the central tenants of Keynesian economics.(1 point)

Question

Responses

In Keynesian economics, the emphasis is on the determination of the value of a product and the importance of its utility to the consumer. In general, Keynesian economics states that, when the government tries to get more involved in the economy, it makes it worse.
In Keynesian economics, the emphasis is on the determination of the value of a product and the importance of its utility to the consumer. In general, Keynesian economics states that, when the government tries to get more involved in the economy, it makes it worse.

Keynesian economics is the theory or practice of controlling the supply of money as the chief method of stabilizing the economy.
Keynesian economics is the theory or practice of controlling the supply of money as the chief method of stabilizing the economy.

In Keynesian economics, the government should not influence the economy during times of good economic growth, but it should take action to stimulate the economy during recession by increasing spending and lowering taxes.
In Keynesian economics, the government should not influence the economy during times of good economic growth, but it should take action to stimulate the economy during recession by increasing spending and lowering taxes.

Keynesian economics is the theory that inflation is the main driving force behind economic growth or recession. The Keynes effect looks at the relationship that inflation has with both real and nominal interest rates.

Answer 1

The central tenets of Keynesian economics can be summarized as follows:

1. Aggregate Demand: Keynesian economics emphasizes the importance of aggregate demand—the total demand for goods and services in the economy—as the primary driver of economic performance. Fluctuations in aggregate demand are seen as the main cause of economic cycles.

2. Role of Government: Keynesians advocate for active government intervention, particularly during periods of economic downturn. They argue that governments should increase spending and lower taxes during recessions to stimulate demand and encourage economic recovery.

3. Multiplier Effect: Government spending can have a multiplier effect. When the government injects money into the economy, it can increase overall demand as that money circulates, leading to further economic growth.

4. Price and Wage Rigidity: Keynesians believe that prices and wages do not adjust quickly to changes in supply and demand. This rigidity can lead to prolonged periods of unemployment and underutilization of resources.

5. Investment and Economic Growth: Business investment plays a crucial role in economic growth, and factors influencing investment decisions are critical in understanding economic fluctuations.

6. Psychological Factors: Keynes emphasized the role of psychological factors (like consumer and business confidence) in economic decision-making, arguing that these can lead to irrational behaviors that impact the economy.

In conclusion, Keynesian economics supports the idea that government intervention is necessary during economic slumps to stabilize and stimulate the economy through increased spending and investment.