In 1936, John Maynard Keynes published The Theory of Employment, Interest, and Money. The book is one of the most famous economics books of the 20th century. The cook challenges the classical economists" views and set off what is now referred to as the Keynesian Revolution. Keynesian theories developed to attempt to solve the problem of unemployment brought on by the Great Depression. John Maynard Keynes suggested that the government should jolt the economy by increasing the aggregate demand.
There is a large difference in the classical economists" views and John Keynes." The difference is surrounding the participation of the government in the economy. Classical economists advocated laissez-faire, a belief that the government should not intervene to help the economy. The classical economists, on the other hand, believed bad spouts in the economy were naturally occurring and therefore would naturally correct themselves. Classical economists believed that price levels would fall until the quantity supplied equaled the quantity demanded. That wages would drop until the number of people needed to work equaled the number of people willing to work; and interest rates would decrease until the amount invested equaled the amount saved. .
John Maynard Keynes, however, believed the government should intervene to help the economy until it is strong again. Keynes believed that wages and prices were not flexible enough to ensure full employment. He believed the government should increase spending to help the economy and once the economy started to become table again the government would pull away. He believed that the government could shock the economy out of depression.
The Keynesian theory can still be applied today because anytime the economy has a downturn, the government could help out until stability is restored. The government spends money in the economy today anyway, so it would be convenient for the government to increase spending when needed.
