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Keynesian Theory And Aggregate Demand

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THE KEYNESIAN THEORY AND AGGREGATE DEMAND

By Riley Lennon

The great depression in the 1930’s devastated the economic market, but also produced two of the greatest economists to ever live, John Maynard Keynes and Friedrich August Hayek. Why did the economist John Maynard Keynes advocate for the government to have an active role with influencing the level of economic activity. This is because Keynes believes that this will stimulate the economic activity and bring the country out of economic drought. Keynes’ theory leads to the government influencing the level of aggregate demand, and how it effects inflation and output. Although Keynes was known as the greatest economist of this era, there was another economist by the name of Friedrich Hayek, whose beliefs were completely opposite to those of Keynes. Hayek wanted no government intervention and for the markets to control themselves.

The Keynesian theory was developed by John Maynard Keynes in attempt to understand the great depression. Keynes Wanted lower taxes and higher government spending witch both of these methods would stimulate economic activity and demand in the economic cycle in an attempt to heave the global economy out of financial depression. This economic theory was only created after the economic boom in the 1920’s. During the 1920’s every economist thought that it was going to continue forever, this boom was caused by several factors such as lower tax rates which would encourage people to
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