jancancook
Posts : 1136 Join date : 2011-01-02
| Subject: According to Keynesian theory, some microeconomic-level actions Sat Mar 26, 2011 4:15 pm | |
| According to Keynesian theory, some microeconomic-level actions—if taken collectively by a large proportion of individuals and firms—can lead to inefficient aggregate macroeconomic outcomes, where the economy operates below its potential output and growth rate. Such a situation had previously been referred to by classical economists as a general glut. There was disagreement among classical economists (some of whom believed in Say's Law—that "supply creates its own demand"), on whether a general glut was possible. Keynes contended that a general glut would occur when aggregate demand for goods was insufficient, leading to an economic downturn resulting in losses of potential output due to unnecessarily high unemployment, which results from the defensive (or reactive) decisions of the producers. In such a situation, government policies could be used to increase aggregate demand, thus increasing economic activity and reducing unemployment and deflation. Most Keynesians advocate an activist stabilization policy to reduce the amplitude of the business cycle, which they rank among the most serious of economic problems. This does not necessarily mean fine-tuning, but it does mean what might be called 'coarse-tuning.' For example, when the unemployment rate is very high, a government can use a dose of expansionary monetary policy. online jobs for studentsweb design | |
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