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Keynesian Economics
Keynesian Economics
Keynesian economics is an economic theory of total
spending in the economy and its effects on output
and inflation. Keynesian economics was developed by the
British economist John Maynard Keynes during the 1930s
in an attempt to understand the Great Depression. Keynes
E C O N O M I C DEVELOPMENT advocated for increased government expenditures and
lower taxes to stimulate demand and pull the global
economy out of the depression.
Inflation
Increase in the prices of goods and services over time.
Increases your cost of living.
Key Terms
Great Depression
Worldwide economic downturn that began in 1929 and
lasted until about 1939
Caused drastic declines in output,
severe unemployment, and acute deflation in almost
every country of the world.
Key Keynesian Economics focuses on using
01 active government policy to manage
aggregate demand in order to address or
Takeaways prevent economic recessions.
4. Drive to maturity
3. Take-off
50% 50%
Numerical examples:
•If the savings rate is 10% and the capital output
ratio is 2, then a country would grow at 5% per
year.
•If the savings rate is 20% and the capital output Keynesian
theory
ratio is 1.5, then a country would grow at 13.3%
per year.
•If the savings rate is 8% and the capital output
ratio is 4, then the country would grow at 2% per
year.
Based on the model therefore the rate of growth in
an economy can be increased in one of two ways:
Keynesian Model
Distinguish features of a
Keynesian Model
02 Keynes used
his income‐expenditure
Expenditures
model to argue that the
These are economy's equilibrium level
payments of of output or real GDP may
currency or barter
credits for not correspond to the
necessary inputs natural level of real GDP.
(goods or services).
Keynes' Income‐Expenditure Model
Note:
• Each AE curve corresponds to a different
equilibrium level for Y.
• Each Y is a multiple of the level of autonomous
aggregate expenditure, A, as was found in the
algebraic determination of the level of
equilibrium real GDP.
Graphical illustration of the
Keynesian theory
A B C D
Simple Portfolio
Presentation
Thank You
-Group 1