Keynesian Economic Theory - Essay Example

Keynesian Economic Theory Keynesian Economic Theory Economists and financial experts have coined several economic theories such as the neoclassical synthesis to provide solutions for the pitiable economic conditions of the country. Even so, the best economic theory for our country is the Keynesian economic theory because an increase in aggregate demand increases economic activity in the country. The resultant increase in economic activity has a ripple effect because it increases employment opportunities and reduces inflation.

The main cause of economic problems in the country is the amplitude of the business cycle. The Keynesian economic theory involves the stimulation of the economy to encourage people to spend. This is achievable either through government investment in infrastructure or a decrease in interest rates. An increase in income results in more spending, which results in more production and spending. The cycle continues, as there is more income and the ability to spend more money. In consequence, the original government investment results in a ripple reaction that involves economic activity.

Obama is largely a Keynesian economist because of his strategies for economic stimulation. The move by the government to increase money supply, or purchase products in the market by itself is beneficial because it increases spending. The concept of equilibrium in unregulated markets creates a capitalist economy that has several flaws. There is a need to leverage assets by real creation of wealth, which increases economic productivity, instead of through debt. It is evident, following the recent bubble, that reliance on equilibrium is detrimental to economic growth and productivity.

The Keynesian economic theory is the best because the government is the only economic actor that can favorably supply credit and demand for economic growth.