﻿ Keynesian Economics: The Concise Encyclopedia of Economics |
Library of Economics and Liberty  Keynesian Economics  by Alan
S. Blinder About the Author Keynesian economics is a theory of
total spending in the economy (called aggregate demand) and its
effects on output and inflation. Although the term has been used
(and abused) to describe many things over the years, six
principal tenets seem central to Keynesianism. The first three
describe how the economy works.  1. A Keynesian believes that
aggregate demand is influenced by a host of economic
decisions—both public and private—and sometimes behaves
erratically. The public decisions include, most prominently,
those on monetary and fiscal (i.e., spending and tax) policies.
Some decades ago, economists heatedly debated the relative
strengths of monetary and fiscal policies, with some Keynesians
arguing that monetary policy is powerless, and some monetarists
arguing that fiscal policy is powerless. Both of these are
essentially dead issues today. Nearly all Ke