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Keynesian economic policies and the New Deal

Keynesian economic policy is a diversion from the laissez-faire concept of a free market economy. A laissez-faire concept of the economy argues that the laws of supply and demand should regulate prices, interest rates, employment and other aspects of the economy. Keynesian economics argues that there are times when the federal government should step in and "jump start" or boost the economy in economically depressed times.

Keynesian policies do not advocate that the government take over the economy completely. They actually encourage a mixed economy where most industries and utilities are owned privately. Keynes advocated the discouragement of savings. A central part of his economic theory was the idea of the circular flow of money. He argued that when a person spent his money that became the earnings of another person who in turn spent his money providing an income for still another person. This circular flow of money was what propelled a normally functioning economy. He argued that the Great Depression caused people to naturally want to hang on to their money rather than spend it. He said that in order to keep the economic cycle going, the government should step in and provide jobs, tax breaks and an influx of cash in order to keep the economy alive. Many of these ideas became foundational in New Deal programs such as defense spending, government works projects, and tax breaks.

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Keynesian economic policy is a diversion from the laissez-faire concept of a free market economy. A laissez-faire concept of the economy argues that the laws of supply and demand should regulate prices, interest rates, employment and other aspects of the economy. Keynesian economics argues that there are times when the federal government should step in and "jump start" or boost the economy in economically depressed times.

Keynesian policies do not advocate that the government take over the economy completely. They actually encourage a mixed economy where most industries and utilities are owned privately. Keynes advocated the discouragement of savings. A central part of his economic theory was the idea of the circular flow of money. He argued that when a person spent his money that became the earnings of another person who in turn spent his money providing an income for still another person. This circular flow of money was what propelled a normally functioning economy. He argued that the Great Depression caused people to naturally want to hang on to their money rather than spend it. He said that in order to keep the economic cycle going, the government should step in and provide jobs, tax breaks and an influx of cash in order to keep the economy alive. Many of these ideas became foundational in New Deal programs such as defense spending, government works projects, and tax breaks.

Keynesian policies hadn't been around long enough to be determined as completely reliable or not so it would be wrong to say that the New Deal was built on the foundation of Keynesian policies. However it is true that many New Deal concepts followed the ...

Solution Summary

This is a discussion of the economic theories developed by John Maynard Keynes, a 20th century British economist. Keynes' ideas were influential during the discussions surrounding the New Deal policies of Franklin Roosevelt in the 1930's. Over 1000 words of original text. Also contains links to various websites that have much more information.

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