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Keynesianism

In: Business and Management

Submitted By hines5178
Words 332
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The Keynesian Frameworks Fiscal Policy states that if government spending increases and tax rates decrease that aggregate demand will stimulate. Then after the economy starts booming again the cycle will change to increased tax rates and decreased spending. Those that believe in Keynesian theory say this method is good for times of trouble such and low economic activity/growth and recessions. This policy happened in the late 1920s early 1930s at that time the country was going through the New Deal and this policy is the reasoning behind that slow economy equals less money spent. “Rising prosperity, built upon Keynesian policies and the postwar social contract between business and labor, may have engendered beliefs that the core economic problems of income distribution and mass unemployment had finally been solved.”(Palley).
The weaknesses in the Keynesian theory are internal intellectual divisions, and downward prices lead to unemployment. In regard to internal intellectual divisions, the problem was that typically the workers for any company were getting paid for their worth in that company and not for the job they are performing. “In effect, whereas Keynesians contributed greatly to understanding the factors of aggregate demand and its role in determining employment outcomes, they developed no matching analysis of production conditions and their interactions with and impacts on aggregate demand.”(Palley). Has for the downward prices and unemployment the companies are paying the workers less, thus making it to were the workers cannot stimulate the economy has the government would like them too.
A major strength is the direction the economy goes to after they decrease the tax rates. This means that more families can purchase things in a slow economy to keep businesses afloat. This has been proven in the recent year with states giving tax free weekends

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