INDEV100 Lecture Notes - Lecture 6: John Maynard Keynes, Franklin D. Roosevelt, Deflation
31 Oct 2018
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Document Summary
Keynesian economics is an economic theory named after john maynard keynes. It was a simple explanation for the cause of the great depression (1930) Keynes economic theory was based on a circular flow of money. It referred to the idea that when spending increases in an economy, earnings also increase, which can lead to even more spending and earnings. In keynes" theory, one person"s spending goes towards another person"s earnings, and when that person spends his or her earnings, he or she is, in effect, supporting another person"s earnings. This cycle continues on and helps support a normal, functioning economy. Keynesian economic s places emphasis on study of the economic behaviour of individuals and companies (microeconomics) Therefore the aggregate demand created by households, businesses and the government and not the dynamics of free markets is the most important driving force in an economy. When the great depression hit, people"s natural reaction was to hoard their money.
