Economy driven by aggregate demand from "summary" of The General Theory of Employment, Interest, and Money by John Maynard Keynes
The central idea presented in 'The General Theory of Employment, Interest, and Money' is that the level of economic activity in a society is primarily determined by the level of aggregate demand. In other words, the total amount of spending in an economy drives the overall level of production and employment. Keynes argues that fluctuations in aggregate demand are the main cause of economic fluctuations. When aggregate demand is high, businesses are motivated to produce more goods and services, leading to increased employment and economic growth. Conversely, when aggregate demand is low, businesses cut back on production, leading to unemployment and economic stagnation. According to Keynes, the economy can sometimes get stuck in a situation where aggregate demand is insufficient to fully utilize the economy's productive capacity. This leads to a situation of involuntary unemployment, where there are people willing and able to work but unable to find employment due to lack of demand for goods and services. To address this issue, Keynes proposes that the government should play an active role in managing aggregate demand through fiscal policy. By increasing government spending during periods of low aggregate demand, the government can stimulate economic activity and create jobs, thereby boosting overall demand in the economy. Keynes also emphasizes the importance of consumer and business confidence in driving aggregate demand. When consumers and businesses are optimistic about the future, they are more likely to spend and invest, leading to increased demand and economic growth. On the other hand, pessimism can lead to a decrease in spending and investment, further exacerbating economic downturns.- Keynes's theory of an economy driven by aggregate demand highlights the importance of managing demand to ensure full employment and stable economic growth. By understanding and addressing fluctuations in aggregate demand, policymakers can work towards creating a more prosperous and stable economy for all members of society.
