Explain the Rise and Fall of Keynesianism Essay

Explain the Rise and Fall of Keynesianism - Essay Example According to the essay "Rise and fall of Keynesianism" findings, Keynesianism suggests that often private sector decisions cause inverse macroeconomic outcomes and hence it is suggestible for the public sector to deliver active policy responses which mainly include central bank’s monetary policy actions and government’s fiscal policy actions. Keynes argues that these activities would assist the economic sector to stabilize output over the business cycle. Although Keynesian theory can be stated thus in simple terms, it comprises larger ideas. To illustrate, Keynesianism has a close similarity with the concept of ‘General Glut’ proposed by classical economists. However, it is identified that classical economists had the disagreement regarding the conditions of the general glut as some of them believed in Say’s law â€Å"supply creates its own demand† (Best, n.d.). In contrast, Keynes argues that insufficiency in aggregate demand for goods can be featured as the direct cause of general glut which would lead to economic decline and subsequent unemployment difficulties. In this situation, Keynesianism recommends (as cited in Blinder) that thoughtful governmental policies can easily overcome such crises if these policies are effectively employed to increase the aggregate demand. This, in turn, would mitigate the adverse impacts of unemployment and deflation. Similarly, Keynesian economics brings some theoretical basis for a crucial distinction between involuntary unemployment and voluntary unemployment. ... This in turn would mitigate the adverse impacts of unemployment and deflation. Similarly, Keynesian economics brings some theoretical basis for a crucial distinction between involuntary unemployment and voluntary unemployment. From the Keynesian point of view (as cited in Knoop, 2010, p.40), the individuals who seek jobs at the existing wage rates can be grouped into involuntary unemployed. Corry (n.d.) reflects that Keynes’ innovative concepts produced some revolutionary changes in the economic sector since the traditional economists believed that unemployment was resulted from certain labour market rigidities such as ‘excessive wage claim, trade union activities, and unemployment pay’ (ibid). According to Keynesianism, the increasing unemployment rate can be directly attributed to the failure in total spending caused by the inefficient business decisions of private firms. Therefore, it is obvious that government has to play a crucial role in formulating efficien t growth policies which would facilitate sustainable economic growth of the country. In short, Keynesian economics constitutes a demand based economy (Reference for Business). Limitations The Keynesian economics gave greater emphasis on employees’ wage rates without considering the profitability of the firm. Although, it had aided the nation to ensure employee welfare, the constancy of this system was always subject to change. For instance, sometimes, international competition adversely affected the capital requirements and public expenditure of the nation. In such difficult situations, the government failed to meet adequate funds for wage distribution. As