Essay The Keynesian Theory - 460 Words

Keynesian Theory nbsp;nbsp;nbsp;nbsp;nbsp;The Great Depression can be greatly understood by the Keynesian Theory. It is actually crucial to understanding the Great Depression. nbsp;nbsp;nbsp;nbsp;nbsp;To begin, when the Great Depression hit worldwide, it fell on economists to explain it and devise a cure. Most economists were convinced that something as large and intractable as the Great Depression must have complicated causes. Keynes came up with an explanation of economic slumps that was surprisingly simple. In fact, when he shared his theory and proposed solution with Franklin Roosevelt, the President is said to have dismissed them with the words: quot;Too easy.quot; nbsp;nbsp;nbsp;nbsp;nbsp;Keynes explanations of†¦show more content†¦But suppose something happens to shake consumer confidence in the economy. nbsp;nbsp;nbsp;nbsp;nbsp;For example, if someone has a low pay roll salary, they will not have any confidence to want to spend their money. What they will do is put their money in a saving account. Therefore, the buyer will lose money. By putting money into the worried consumer, the consumer will spend money. By the consumer spending money, the buyer receives money thus completing the circular flow of money. By not having the circular flow of money, their was a great depression (this is only one explanation). Competing this circular flow of money was one solution of The Great Depression. nbsp;nbsp;nbsp;nbsp;nbsp;By putting money into people’s hands, Keynesian’s Theory creates a budget deficit. For example, people who are given ‘free’ money, don’t create a budget of their spending. On the other hand, it creates profit for the buyers. Although, this hurts the consumer, they may be getting money but they spend it like there is no tomorrow. Hence the reason for naming the theory â€Å"to easy.† nbsp;nbsp;nbsp;nbsp;nbsp;Although it seemed to easy, The Government went through with the theory anyway. The reason for this is because Roosevelt tried so many of his tactics and none of them worked! He was desperate, he knew as the President of the United States,Show MoreRelatedThe Theory Of Keynesian Economics916 Words   |  4 Pagesâ€Å"classical theory had difficulty in explaining why the depression kept getting worse† (Cheung, n.d., para. 1). Many economists have attempted to develop theories that help to explain changing circumstances and why things kept getting worse. John Maynard Keynes, a British economist also known as the founder of macroeconomics, saw this as an opportunity and began to develop alternative ideas. His alternative ideas led to the idea of Keynesian economics. What is Keynesian Economics? Keynesian economicsRead MoreNeoclassical Theory Of Keynesian Theory1578 Words   |  7 PagesNeoclassical elements in the Neoclassical-Keynesian synthesis? In what way does it differ from the Cambridge (UK) view of Keynesian economics? 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