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The economist John Maynard Keynes, author of The General Theory of Employment, Interest and Money (1936), supported the use of fiscal policy by Government to create full employment - Leaving Cert Economics - Question e - 2012
Question e
The economist John Maynard Keynes, author of The General Theory of Employment, Interest and Money (1936), supported the use of fiscal policy by Government to create ... show full transcript
Worked Solution & Example Answer:The economist John Maynard Keynes, author of The General Theory of Employment, Interest and Money (1936), supported the use of fiscal policy by Government to create full employment - Leaving Cert Economics - Question e - 2012
Step 1
Explain the above statement.
Answer
John Maynard Keynes advocated for the use of fiscal policy as a tool to enhance employment levels. His argument centers around the idea that during economic downturns, private spending tends to decrease, leading to reduced demand for goods and services, which in turn results in higher unemployment.
To counteract this, Keynes proposed that the government should intervene by increasing public expenditure. This could be achieved through direct taxation to boost individual income and subsequently encourage consumer spending.
Additionally, Keynes emphasized that increased governmental spending, especially on public works, could stimulate demand in the economy. This increased demand would create jobs and reduce unemployment, aligning with his vision of full employment.
Step 2
Discuss two other key concepts which Keynes contributed to economic thought.
Answer
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Equilibrium National Income: Keynes introduced the concept where national income does not always reach equilibrium at full employment levels. He argued that economic fluctuations could lead to involuntary unemployment, with the full capacity of the economy not being realized.
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Investment Decisions by Entrepreneurs: Keynes posited that investment levels in an economy depend largely on entrepreneurs' expectations about the future, rather than solely on interest rates. This insight highlighted the psychological factors influencing economic decision-making and the potential for investments to be insufficient to meet the savings rate, which could result in economic stagnation.