The Impact Of Keynesian Theory On The Economy - 1805 Words

View In the world today there are three types of scenarios; either the economy is in a recession, economic stability or inflation. And when it’s in a Recessionary or Inflationary period the things the government must do to correct the situation to bring things back to normal before the situation becomes worst. Here we are going to try and understand the concept of the â€Å"Keynesian Theory† approach to â€Å"fixing† the economy and bring things back to normal. John Maynard Keynes was one of the most influential economists of the 20th century. His theory has been used throughout the years with great success. Keynes approach to a recession was that the public has lost in confidence in their government, has become frighten, and holds on to their money, which results in less spending. It becomes a vicious cycle of economic decline. According to Keynes the way to break this was for the government to spend money on bridges, roads and public works which in turn pumps money into the economy which in turn would put money back into the economy, create more jobs and the public would have more money to spend. This along with tax cuts would help â€Å"jump start† the economy. There are tools that the United States can use to expand the money supply. The Federal Reserve being the most common can buy U.S debts from banks which in turn would give the banks more money to loan. The second would be to loosen credit requirement, and a third would be to cut the prime lending rate to commercial banks.Show MoreRelatedKeynesian Theory During The Great Depression949 Words   |  4 PagesSince the establishment of the Keynesian theory during the Great Depression, there was a continuous rivalry between Keynesians and monetarists. 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