Comparisons and Contrasts Between the Textbook “Keynesian” View of the Proper Way to Reduce Unemployment and Keynes’s Own Discussion of the Trade Cycle

Comparisons and Contrasts Between the Textbook “Keynesian” View of the Proper Way to Reduce Unemployment and Keynes’s Own Discussion of the Trade Cycle John Maynard Keynes (June 1883 – April 1946), one of the founders of modern macroeconomics, was a British economist who till this day is known as one of the most influential economists of his time. Keynes’s ideas greatly affected the theory and practice of modern macroeconomics and in addition enlightened the economic policies of governments. Keynes became famous in the 1930’s when he challenged the views of classical economic thinking during the Great Depression. Classical economists argued that free markets would automatically lead to full employment. Keynes, however, argued that aggregate demand was the determinant of overall economic activity and that low aggregate demand could lead to long periods of high unemployment. Today, “Keynesian Economics” is considered as one of the most influential approaches to economic thought and is covered in modern economic textbooks. The standard textbook interpretation of “Keynesian” macroeconomic policy for a recession/depression is to increase government spending and/or reduce taxes in order to increase aggregate demand, which results in an increase in output and employment. This theory has some similarities to Keynes’s own discussion, however there are more differences. With the help of John Maynard Keynes’s book The General Theory of Employment, Interest, and Money and other sources including online texts and notes provided by Professor Wade Hands, this paper will compare and contrast the textbook Keynesian view of the proper way to reduce unemployment with Keynes own discussion of the trade cycle in his book. The trade cycle is a theory presented by John Maynard Keynes that illustrates the booms and busts of an economy, that is to say the levels of high employment, output and prices followed by the levels of low employment, output and prices. In his book The General

Bibliography: Keynes, John Maynard. The general theory of employment, interest, and money. Amherst, N.Y.: Prometheus Books, 1997. Print. Krugman, Paul, Robin Wells, and Kathryn Graddy. "Aggregate Demand and Aggregate Supply." Essentials of Economics. 2nd ed. New York: Worth Publishers, 2011. 393-427. Print.