The Keynesian School of Economics Essay Example | Topics and Well Written Essays - 1250 words

The Keynesian School of Economics - Essay ExampleKeynes brought out theories that form a base to understand the undischarged depression. With the assist of these theories, Keynes attempted to explain how a thing as great depression could occur and suggested actions that could help in overcoming the same. The possibility also suggested a set of measures that could further avoid any(prenominal) such misadventure and could maintain a healthy balance of the overall economy that could support good amount of exercising along with an appropriate demand and supply. This would in turn promise that enough amount of money circulated in the grocery that could be used for business investments and productions to meet the demand.Individuals such as Robert Lucas, Thomas J. Sargent, and Robert Barro carried the theory precedent but at the same time questioned many another(prenominal) of its percepts. This resulted into small large modifications in the original theory and came to be know as Th e Keynesian Revolution in which new adjustments were proposed to the original Keynesian tenets.In many aspects, the Keynesian theory departed with the classical economics that was much prevalent in those days. Keynes debated that as proposed by the classical theory, the markets would not by itself win a state of full traffic equilibrium, but at any given point and amount of unemployment, an economy can come to a standstill and fillet any further progress. He also found the classical theory to be inadequate in providing equal financial opportunities and being unable to solve the problem of unemployment. The outstanding faults of the economic society in which we live are its failure to provide for full employment and its arbitrary and inequitable distribution of wealthiness and incomes Keynes, 1936.The classical theory advocated a policy of non-intervention by the state government in the economic personal matters and suggested that the economy is entirely self regulating that doe s not require any external manipulation for it to deliver the goods a state of balance. Whereas the Keynesian theory suggested that the economy would require appropriate manipulations to direct its growth in a desired manner and this is to be achieved by active involvement of the government by endlessly managing the amount of aggregate demand. Demand is the key by which the government could exercise control over the market and the total amount of employment. Aggregate demand shocks can cause significant changes in output and employment if agents adjust prices and wages in ways that are insignificantly suboptimal from their individual standpoints Page 43, N. Gregory. On this account the policies that are frame in on the basis of Keynesian theories are called Demand Management Policies. The Keynesian theory also does not fuck between short-run and long-run principles as the classical theory does. Keynes suggested that the economy could stabilize at any equilibrium level of income and that it was the role of the government to verify that the given equilibrium is appropriate for the state economy. If the equilibrium does not promise total employment, the government needs to interfere by using appropriate policies to achieve the desired equilibrium. In that case the government would either have to implement reflationary policy that can hike the aggregate demand or deflationary policy that can decrease the aggregate demand in the market. The chief theories put forward by Keynes were The Labor