Question

What was the government's role before Keynesian economic theory, did the government get involved at all...

What was the government's role before Keynesian economic theory, did the government get involved at all with market interactions between demand and supply?  

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Answer #1

Before keynes, there is classical model which is based on laissez faire policy i.e. Govt. Should not interfere in the functioning of the market. In this thaught, Govt. Should not use fiscal or monetary policy to correct disequilibrium. Because classical assumes the complete crowding out which says any increase in G will automatically reduces tge private aggregate espenditure leading to aggregate demand same. Thus Government should only ensure that market is functioned under free flow. There should be no interference of any and adjustment in demand and supply will automatically move economy to equilibrium.Govt. Should intervene to provide good market but govt. Should not intervene demand and supply.

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