SOURCE: Wikipedia, captured 2020-04-24
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Keynesian economics (sometimes Keynesianism, named for the economist John Maynard Keynes) are various macroeconomic theories about how in the short run -- and especially during recessions -- economic output is strongly influenced by aggregate demand (total spending in the economy). In the Keynesian view, aggregate demand does not necessarily equal the productive capacity of the economy; instead, it is influenced by a host of factors and sometimes behaves erratically, affecting production, employment, and inflation.
Keynesian economics developed during and after the Great Depression from the ideas presented by Keynes in his 1936 book, The General Theory of Employment, Interest and Money. Keynes contrasted his approach to the aggregate supply-focused classical economics that preceded his book. The interpretations of Keynes that followed are contentious and several schools of economic thought claim his legacy.
Keynesian economics served as the standard economic model in the developed nations during the later part of the Great Depression, World War II, and the post-war economic expansion (1945-1973), though it lost some influence following the oil shock and resulting stagflation of the 1970s. The advent of the financial crisis of 2007-08 caused a resurgence in Keynesian thought, which continues as new Keynesian economics.
Keynesian economists generally argue that as aggregate demand is volatile and unstable, a market economy often experiences inefficient macroeconomic outcomes in the form of economic recessions (when demand is low) and inflation (when demand is high), and that these can be mitigated by economic policy responses, in particular, monetary policy actions by the central bank and fiscal policy actions by the government, which can help stabilize output over the business cycle. Keynesian economists generally advocate a managed market economy -- predominantly private sector, but with an active role for government intervention during recessions and depressions.
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