Keynesian economics

The world of macroeconomics shifted dramatically in nineteen thirty-six with John Maynard Keynes’s "The General Theory." Before Keynes, classical economics held that markets naturally tended toward full employment and equilibrium if governments stayed out. This view faltered during the Great Depression, when mass unemployment persisted despite predictions that markets would self-correct. Keynes argued that economies could get stuck below full employment and needed intervention. His work gave rise to Keynesian economics, which dominated thought after World War Two and profoundly shaped fiscal and monetary policy in the United Kingdom and the United States. Keynesian economics holds that aggregate demand—the the sum of consumption, investment, government spending, and net exports— drives economic output and employment, especially in the short run. Private decisions can sometimes result in insufficient demand, causing unemployment and wasted resources, and the economy may remain stuck in a slump without intervention. To address this, Keynesian economics advocates for active government policy: if demand is weak, especially during a recession, governments should increase spending or cut taxes to stimulate the economy. Central banks can also lower interest rates to encourage borrowing and spending, aiming to reignite activity and reduce unemployment. One of Keynesian economics’ most influential contributions is the idea of the multiplier effect. When the government spends money—say, building