Keynes Theory Of Business Cycles Essay - 2306 Words

Keynes Theory of Business Cycles Introduction A business cycle refers to a phenomenon of alternating periods of expansion and contraction in economic activity. In many cases such as have been witnessed in free market nations including the USA and Great Britain, economic growth is characterized by long-run upward GNP growth, followed by large periodic short-run fluctuations in economic activity. The economic period associated with high income, output and unemployment, is also known as upswing expansion or prosperity. The economic period associated with low income, output and unemployment is also referred to as downswing, contraction, recession or depression. These economic fluctuations are called â€Å"trade cycles† because they tend to occur in a recurrent manner (Knoop, 2009, p.39). Although various theories explain this phenomenon, this essay analyzes â€Å"Keynes theory of trade cycles† and explains how banking or finance comes into perspective. Phases of the Business Cycle Figure 27.0: Phases of the Business Cycle Source: (Pilkington, 2014). As can be seen from figure 27.0 above, business cycles occur in four distinct phases including: Expansion, downturn, recession, and recovery. He first phase is the expansion phase which may also referred to as boom, upswing or prosperity. The second phase is the Peak also known as the upper turning point. The third phase is the contraction which may also be referred to as downswing, recession, or depression. The fourth phase is the troughShow MoreRelatedKeynesian Theory And Aggregate Demand1499 Words   |  6 Pages THE KEYNESIAN THEORY AND AGGREGATE DEMAND By Riley Lennon The great depression in the 1930’s devastated the economic market, but also produced two of the greatest economists to ever live, John Maynard Keynes and Friedrich August Hayek. Why did the economist John Maynard Keynes advocate for the government to have an active role with influencing the level of economic activity. This is because Keynes believes that this will stimulate the economic activity and bring the country outRead MoreThe Economists Economic Theory Essay770 Words   |  4 PagesEconomists What is the best way to earn money. To entrust on someone else like the government or yourself? Two economists, John Maynard Keynes and Friedrich von Hayek had two contrasting views on how the government should handle the market. Keynes believe on the government controlling the market while Hayek wanted the government to stay away from it. Hayek’s economic theory is right because it focuses on us as citizens to have responsibilities towards our money. To be utilized fully in a decentralizedRead MoreThe Impact Of Neoclassical Economics On The Economy Essay1344 Words   |  6 Pagesadvocated for in his Classical Economic theory. Smith suggested that minimal intervention should be required regarding government policy as the laws of supply and demand will be self-correcting. 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One of his proposed solutions to this was for the government to intervene to increase aggregate demand. He argued that by investing government funds, the amplitude of the business cycle could be reduced and would stabilize continued economic growth. Anot her method of managing aggregate demand involvedRead MoreKayne vs Hayek1370 Words   |  6 PagesChanya Udomphorn ID# 5380040 Macroeconomics Mr. Rattakarn Komonrat Keynes vs. Hayek Macroeconomics is a branch of economics dealing with the performance, structure, behavior, and decision-making of the whole economy. Macroeconomists study aggregated indicators such as GDP, unemployment rates, and price indices to understand how the whole economy functions. They develop models that explain the relationship between such factors as national income, output, consumption, unemployment, inflationRead MoreThe Great Depression Of The 1930 S Essay762 Words   |  4 PagesJohn Maynard Keynes was the most influential economist of the 1900’s and many of his ideas were adopted by Franklin D. Roosevelt to combat the Great Depression of the 1930’s. With the passing of the economic crisis in 2008, countless articles have been published supporting Keynes and his economic thought. He investigated the origins of the Great Depression and remodeled the field of economics with a basic conclusion: economies recover from downturns by spending money. Keynes theorized that dur ingRead MoreKeynesian Economics1016 Words   |  5 PagesMaynard Keynes’ influence and ideology Even today John M. Keynes’ ideas remain crucial to the most important debate of our time: how can we escape from the economic crisis? Should governments borrow and spend their way out of trouble or slash spending and reduce the national debt? Despite Keynes’ avid support for the free market, his theory is one strongly based on the mixed-market economy. â€Å"Keynes said it was possible for governments to come in and make markets work better... Keynes saved capitalismRead MoreThe United States Economy: Recession Policy Recommendations651 Words   |  3 PagesThe United States economy: Recession policy recommendations According to classical Keynesian theory, the best way to deal with a recession is for the government to spend at a deficit to stimulate demand. Waiting for the business cycle to rectify itself, at least during a very severe economic downturn, shows little understanding of real world economic and psychological wisdom. When people are worried about losing their jobs, they spend less and hide money under the mattress. They do not buy consumer