Keynesian Theory During The Great Depression - 949 Words

Since the establishment of the Keynesian theory during the Great Depression, there was a continuous rivalry between Keynesians and monetarists. The ongoing debate was about which model can most accurately and correctly explain economic instability and which theory provides the best suggestions on how to achieve constant and steady economic growth. There are fundamental differences in these two approaches, for example over the usefulness of government intervention through fiscal policies, monetary aggregates and money market conditions as a policy guide, fixed and flexible exchange rates to name the few. Financial crisis that occurred in 2007-2008, boosted the debate among politicians, economists, scholars over the way the economics policies should be conducted. To begin with, Keynes came up with a theory that challenged monetarist model, that was widely employed in 1930s, as a reflection of the unprecedented events of the Great Depression. From Keynes’ point of view, it was the failure of the free market theory that led the world into financial crisis. Keynes stressed the fact that non-interventionist policies proposed by monetarist economists were the main cause of the depression. He believed that during the liquidity trap governments’ best response is to stimulate the aggregate demand in the economy to offset lack of confidence among consumers and investors (Field 2011). Fear of future unemployment, uncertainty about the impacts of recession, incentives consumers delayShow MoreRelatedMacroeconomic Theories Of Macroeconomics And Classical Economics999 Words   |  4 Pagesmacroeconomics is one of the two most general fields in economics. There are two major macroeconomic theories that economists use to describe the economy. Those theories are Keynesian and Classical. Each theory has a different approach to the economic study of monetary policies, consumer behaviors, and government spending. A few distinctions separate the two theories. Classical economics is the theory that free markets will restore full employment without government intervention. They believe thatRead MoreThe Role of Government in Economy1216 Words   |  5 Pageswidely discussion. This essay discusses the role of government by analyzing both thought of Keynes and Friedman and then prove the effectiveness of Friedman’s theory with historical examples. Firstly, the Great Depression of the 1930s has helped prove the importance of government’s intervention on the economy in the past. The Great Depression started with a decrease in stock prices in America and then quickly spread to most parts of the world (McElvaine, 1993, p 59). There was a tremendous decreaseRead MoreEssay on John Maynard Keynes Versus Friederich A. Hayek603 Words   |  3 Pagescentury, John Maynard Keynes and Friedrich A. Hayek, hold very different economic viewpoints. Keynes is among the most famous economic philosophers. 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They are opposites on the economic policy field and were introduced in the 20th century, but are known for their influence on the economy in the United States both were being used to try and help the economy during the Great Depression. John Maynard Keynes a British economist was the founder of Keynesian economic theory. Keynesian economics is a form of demand side economics that inspires governmentRead More Milton Friedman Essay1059 Words   |  5 Pagesaccomplishments and awards he has received, but what about how Milton Friedman played a very important role in helping us get into a huge national debt? This paper will discuss how Milton Friedman played a negative role in our economy. When the Great Depression hit worldwide, it was up to the economists to explain it and to devise a cure for it. A person named John Maynard Keynes came up with an explanation to the economic slump that was so simple people did not think it would work. Keynes explanationRead MoreEconomic Studies: Quantitative and Qualitative Analysis793 Words   |  3 Pagesdifferent materials such as the government. Two very important economic theories include classical and Keynesian economics. They each have a specific approach on studying consumer behavior, monetary policy, and government spending. Classical economics began during and after the industrialization and was founded by David Ricardo where Friedrich von Hayek became a strong defender of this theory. The classical economic theory is known as free market also referred to as laissez-faire. This means it