John Maynard Keynesian Economic Policies

John Maynard Keynes, a British economist has had a significant influence upon macroeconomics which includes various governments’ economic policies. Keynes believed that application of fiscal policies could lessen the effect of depressions and recessions. He supported lower taxes and increased government expenditures would trigger demand and drag the economy out of depression. (Stefano 2012) Keynesian economics are economic theories of total spending in one’s economy and its effects on inflation and output. To add, Keynesian economics is often used to refer to the concept that economic slumps can be prevented or optimal economic performance can be achieved by triggering aggregate demand of an economy such as intervention policies from the government.

His theory is also based in closed economies where there is no foreign trade available which also shows that Keynes has little relevance to such third-world nations. Finally, Keynes assumes that there is excess supply of labor and other related resources in the economy where machines and workers are all available waiting to be resumed from their temporary suspension. Yet, there is no temporary suspension in such underdeveloped

When income rises, consumption will also rise but by less than increase in income. Consumer behavior further explains why there is rise in saving from increased level of income. In the third-world countries, relationship between consumption and saving do not hold. Due to poverty, consumption on goods will increase as people wish to fulfill their unfulfilled wants. Thus, MPC is high whilst MPS (Marginal propensity to save) is low in such economies. Keynes argued that high MPC would lead to increased level of income from high consumer demand and increased level of output and