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The Pros and Cons of Keynesian Economics.

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"Keynesian economic theory recommends government manipulation of aggregated demand by rising spending, lowering taxes, and incurring debt during recession and pursuing the opposite policies during inflations" (Dye, 2008).

Question:
Discuss the pros and cons associated with the Keynesian theory and how policy makers can improve upon the theory

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https://brainmass.com/political-science/pros-cons-keynesian-economics-policy-theories-recession-345765

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"Keynesian economic theory recommends government manipulation of aggregated demand by rising spending, lowering taxes, and incurring debt during recession and pursuing the opposite policies during inflations" (Dye, 2008).

Question:
Discuss the pros and cons associated with the Keynesian theory and how policy makers can improve upon the theory.

Pros:

In the short run Keynesian economic policy will add money into the economy producing a rise in employment, tax revenue and production. When individuals are short of income it may take en entity like the government to provide a large influx of cash into the national economy. This short term benefit can be seen in the recent stimulus bills passed by President Obama.
Another pro would be the lowering of taxes. When taxes are lowered people have more disposable income at hand. The theory is that they will spend this money thereby stimulating the economy.
Keynesian policies seek to provide stability. Because the government is such a large entity it can provide some stability and avoid huge market swings and lessen the probability of ...

Solution Summary

This is a discussion of the pros and cons of Keynesian economics and also how present day economists can improve on Keynes' theories. Over 700 words of original text and links to important websites are also included.

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A description of Keynesian policies and how they affected the New Deal. Also includes a discussion of the pros and cons of Keynesian economic theory and how modern economists can improve on his theories.

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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