What would you understand by the term “Keynesian Economics

It's an economic theory named after John Maynard Keynes (1883 - 1946), who was a British economist. He is well-know because of his simple explanation of the Great depression causes. The theory was mainly based on a circular flow of money. His ideas got a major amount of interventionist economic policies during the Great Depression.

In this theory, one person's spendings goes towards anothers earnings, and the spendings of the earnings for another person, it effects, anothers earnings. This cycle continues and helps to support, normal functioning economy. The Great depression hit caused people to save up their money, for future uses. Under Keynes' theory this stopped the circular flow of money, economy stayed still.

Ans Keynes solutions to this was to prime the pump. By saying prime the pump he argued that government spendings should be increased, either by increasing money supply or by buying things on the market.But this was not a popular solution, during the depression.


Keynesian economics warns that people musnt't save too much, or underconsumption, and not enough consumption, or spending, in the economy. It also supports large redistribution of wealth, when needed. Keynesian economics says that there is a practical reason for the massive redistribution of wealth: if the poorer sections of society are given sums of money, they will likely spend it, rather than save it, therefore pushing economic growth. Another main idea of Keynesian economics is that trends in the macroeconomic level can unbalancly effect consumer behavior at the micro-level. Keynesian economics, also called macroeconomics..

We can see that fixed investment in plant and equipment falls from "old I" to new I(which is (a) Second(step (b), excess of saving causes interest-rate to fall, getting rid of the excess supply: so we have saving (S) equal to investment. The interest-rate fall prevents that of production and employment.