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Keynesian Economics

Keynesian Economics research papers show that a person seeking to manipulate the economy under Keynesian principles might argue as follows.  When unemployment is at problematic levels the government should, without raising taxes, seek to shift the aggregate demand curve to the right in order to increase the equilibrium level of real GDP and employment.  This increase in the total spending of consumers, business investors, and governmental bodies—an increase planned and controlled by the government–will act as a stimulus to sales, and hence, jobs.

Keynesian Economics

The above is a generalization which, rests on a powerful set of economic assumptions, a set of assumptions which are integral to Keynesian macroeconomics. It was assumed that consumers, being limited in the amount they could spend by their limited incomes, could not be the source of fluctuations in the business cycle. The dynamic, driving forces in both the cause and the amelioration of the effects of the business cycle were therefore assumed to be those entities capable of doing the big spending: businesses and the government. Hence, in a recessionary environment, the proper response would be either an increase in business investment or, if that were rendered impossible by recessionary conditions, the creation of a set of public substitutes for an increase in private investment. This the Keynesians take to be the proper fiscal response to severe economic contraction.

Keynesians advocate monetary policy as the cure for less intense economic slow downs. Easy credits, low interest rates, are seen as having utility in increasing business investment and in the restoration of aggregate demand to a point where full employment is the result. The use of a fiscal policy, in which deficit spending is used to finance public works and/or the subsidization of afflicted groups, is something to be used only in the face of the more severe cases of declining GDP.

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