Keynesian Economics
Definition
An economic theory stating that government intervention is necessary to ensure an active and vibrant economy. This theory suggests that during recessions, government should offset the decrease in private spending with an increase in public spending in order to save jobs and stop further economic deterioration.
Analogy
Imagine you're trying to keep a campfire going. If everyone stops adding wood at once (private sector investment drops), the fire will die out (economic recession). But if someone steps up and adds more wood when others stop (government increases spending), they can keep the fire burning until everyone else starts adding wood again.
Related terms
Aggregate Demand: The total demand for final goods and services in an economy at a given time.
Stimulus Package: Economic measures put together by a government to stimulate a struggling economy.
Deficit Spending: The amount by which spending exceeds revenue over a particular period of time.
"Keynesian Economics" appears in:
Subjects (2)
Resources
© 2024 Fiveable Inc. All rights reserved.
AP® and SAT® are trademarks registered by the College Board, which is not affiliated with, and does not endorse this website.