Keynesian Economics: Government's Role in Managing Demand

Developed by John Maynard Keynes in the 1930s, Keynesian economics argues that aggregate demand—consumer spending, business investment, government spending, net exports—drives the economy. Governments can stabilize growth through:

• Fiscal policy: Adjust spending and taxes to boost or cool demand.
• Monetary policy: Central banks influence money supply and interest rates.

Contrasts with classical economics, which trusts market self-correction. Keynesian ideas have shaped policy since the Great Depression, justifying stimulus spending, tax cuts, and interest-rate cuts.