POLS 1000 Lecture Notes - Lecture 6: Aggregate Demand, Market Clearing, Keynesian Economics
Document Summary
Keynesianism was developed during the great depression of the 1930s this was in a major way influenced by the writings of keynes - a cambridge economist. Keynes published a book entitled general theory of money interest and employment where he looked at the mass unemployment crisis of the 1930s. According to this logic if the state begins to subsidize one area or another the system will become unstable, interrupting the natural balance. Keynes challenges this analysis - in his book he focuses on aggregate demand: components of aggregate demand. In the 1930s all of these were down because of lack of economic prosperity at the time. Keynes argued that the way out of this was not to lower wages, lowering wages only makes the problem worse because it lowers aggregate demand, workers have even less income to purchase goods and services. He believed that there needed to be a focus on aggregate demand.
