John Maynard Keynes’s economic theory

Keynesian economics, contends that a role for government intervention is important in stabilizing the economy, especially in times of recession. Keynesian economics focuses on aggregate demand, the overall expenditure in an economy, as a main cause of economic activity. Keynes held the opinion that government expenditure and taxation policies could be employed to arouse demand and avoid extended unemployment.

Key principles of Keynesian economics:
Significance of Aggregate Demand:
Keynes believed that aggregate demand, including consumption, investment, government spending, and net exports, is the most significant determinant of economic output and employment.

GovernmentIntervention:
Keynes supported active government intervention in the economy, by way of fiscal and monetary policies, to control aggregate demand and ensure full employment.

Multiplier Effect:
Keynes created the theory of the multiplier effect, proposing that a rise in expenditure initially can cause a subsequent increase in overall economic output because of a series of rising income and additional expenditure.