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This is " Game of Theories: The Keynesians " from our Principles of Economics: Macroeconomics course. One point of contention among economists is the causes of

This is "Game of Theories: The Keynesians" from our Principles of Economics: Macroeconomics course.

One point of contention among economists is the causes of business cycles and recessions. And if you disagree on the causes, chances are that you disagree on the solutions.

In this video series, we’re going to explore some of the major business cycle theories – Keynesian, Monetarist, Real Business Cycle, and Austrian – and what their proponents think we ought to do about recessions. In the final video, we’ll take a look at how all four can be applied to the recent Great Recession.

First up, let’s explore the Keynesian theory. Keynesian economics is so named after British economist John Maynard Keynes (1883-1946). Keynes is well-known for his treatise The General Theory of Employment, Interest, and Money, which helped shaped modern macroeconomics. The key component of the Keynesian theory is aggregate demand and the assumption that nominal wages are sticky.

Recessions are unpleasant experiences. We all want to get out of them as quickly as possible. So what would a Keynesian do?

Keynesians tend to favor activist fiscal policy and monetary policy. In other words, they want governments to spend more (think deficits and public works programs) and grow the money supply while lowering interest rates. The idea is that the government is doing everything it can to stimulate aggregate demand.

We’ll cover some problems associated with Keynesian theory in this video, too, and take a deeper dive into the AD-AS model.

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