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Why would a Keynesian want to change demand when all it does is create inflation in...

Why would a Keynesian want to change demand when all it does is create inflation in the long run?

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Answer #1

The reason that a Keynesian wants to change demand is to bring the economy out of recession by focusing on the short term, specially if the economy is currently at an "under full-employmet equilibrium".

When the economy attains equilibrium below full employment level, there is scope to increase the output by increasing the demand side factors. This specially to bring the economy out of recession, specially in the short run. Keynesians emphasise that giving a fiscal stimulus (by the government) can increase aggregate demand. If the Aggregate supply curve is upward sloping (this happens in short run as prices are sticky in short run), this increase in aggregate demand can lead to a rise in output and employment.

Thus, Keynesians want to increase demand because it can bring the economy out of recession in the short run without causing inflation.

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