Question

Agree or disagree: 75+ words

The Keynesian Economic Model is an economic theory of spending in the economy and its effects on output and inflation. This advocated increased government expenditures and and lower taxes to stimulate demand and pull the economy out of depression. This was developed during the 1930s in hopes of being able to understand the Great Depression. A Keynesian believes that demand is influenced by public and private economic decisions. According to the Keynesian theory, demand has an effect on real output and employment, not just on prices. Because prices fluctuate in spending and investing, output also fluctuates.

Answer 1

Agree but not completely.

As per the Keynesian theory the price in the short run do not increase, it is shown by the completely flat supply curve in the market which on reaching the long run becomes completely inelastic like the classical economic supply curve. As this theory was made at the time of depression it made sense then because at that time unemployment was prevalent and increase in unemployment doesn't increased the wages.

As per Keynesian demand can indeed be increased by government expenditure and cutting the tax at the time when the investment is not picking up.