Transcript Keynesian Economics

Keynesian Economics
BY ZACK ALBAN &
KYLE ROTHER
⇒
Has greatly affected
modern
macroeconomics and
social liberalism.
⇒
In the 1950’s and 60’s,
Keynes’ economic ideas
were adopted by 90% of
capitalist governments
around the world.
⇒
Deemed the “Father of
modern
Macroeconomics” and
greatly considered the
most influential
economist of the 20th
century.
⇒
Keynesian economics
was adopted by
economists around the
world to help with the
2007-current financial
crisis.
•John Maynard Keynes: 1883-1964
Major published work: The General Theory
of Employment, Interest, and money
Basics of Keynesian Economics
Basic principals
⇒ Keynesian economics acknowledges that in times
of stress, the economy stops behaving in a flexible
manner, and also that changes in demand in fact
can determine and amend supply issues.
⇒ theory of total spending in the economy (called
aggregate demand) and its effects on output and
inflation.
⇒ Keynes’s General Theory
Basics Cont.
IMPORTANCE
revolutionized the way economists
think about economics. It was pathbreaking in several ways:
⇒ In particular because it introduced the
notion of aggregate demand as the
sum of consumption, investing, and
government spending.
⇒ And because it showed that full
employment could be maintained only
with the help of government spending.
Why It’s Good
Reasons…
⇒ Historical evidence suggests
Keynesian economics has worked
successfully to get a more than a
few economies out of bad economic
times, the largest being the great
Depression.
⇒ Changes in aggregate demand,
whether anticipated or
unanticipated, have the greatest
effect on real output and
employment, not on prices
⇒ Unlike tax cuts, which has
gotten us into the 2007
recession, Keynes’ theory
focuses on stimulating the job
market so Unemployment goes
down, driving the deficit back
up to normal again, similar to
what happened in 1930-1940.
⇒ If the economy is down a trillion
The Big
Picture
dollars, then it needs a government
stimulus injection, but that
government stimulus does not have to
be a trillion dollars. Keynesian theory
says a percentage of the needed boost
is all you have to do, say 1% . Once
$600 to $800 billion is in the hands
of the people they will go out, pay
bills, buy cars, houses, do repairs, and
everywhere they go to spend money
those service providers and retailers
will have more money to spend.
⇒ $800 billion in the hands of regular
Continued
people will become recycled dollars.
Every dollar they spend with a retailer
or service provider is going to be respent by the people who get those
dollars, and the people getting that
money will spend and with business
getting better, more supplies will be
needed more workers needed, and
eventually the economy's’ sputtering
engine will take hold, get into a
rhythm and start running smoothly.
Keynes’ theory works because Tax Cuts are bad:
Tax Cuts (supply side) do not work
⇒ Tax cuts, in the form of larger paychecks,
contribute very little to the stated goal of
stimulating the economy through consumer
spending. The amount of money in each paycheck
isn't enough to keep anyone in foreclosure trouble
from folding.
⇒ Cutting taxes will necessitate a raise later, so just as
people would be adapting to the small increase
above, they will be sacked with increased taxes
because of slightly higher income.
⇒ Tax cuts generated to big businesses begin a
Tax Cuts=Bad
Cont.
trickle down mentality at its finest. Hopefully
the money going to them will “trickle down“
to everyone else and stimulate the economy
and not go into expensive V.P and C.E.O golf
matches.
⇒ Tax cuts are not 100% bad, but the recent tax
cuts from the Bush administration have left
the economy in its current state. The reason
they are not all bad is because President
Obama is actually planning to use tax cuts on
top of economic stimulus to help the less
wealthy middle class spend money and save
themselves, and in doing so, stimulating the
market.
Economic Stimulus (Keynesian Economics)
⇒ Economic stimulus, which has given people
immediate and greater benefits than tax-cuts, is
the undermining principle of Keynesian
economics.
⇒ Keynesians believe in giving money to individuals,
more than enough to start the cycle of growth and
repair in the recession.
⇒ Giving money to individuals and
Stimulus
CONT.
possibly enforcing that some had
to be spent on consumer goods
would IMEDIATELY increase
the welfare of the economy and
government. Plus, such a large
portion of money would help
individuals reduce debt, increase
investment (helping the stock
market), and make substantial
payments on mortgages.
KEYNESIAN
RAP AND
THEORY
 YouTube - keynesian economics
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⇒ Current economy?
⇒ Keynesian in the Great
Questions?
Depression?
⇒ How it works?
⇒ Tax cuts and stimulus?
⇒ John Maynard Keynes?